Australia’s largest equipment finance broking company and the debtor finance specialist have announced that they intend to merge to form an SME and equipment finance giant.
Consolidated Operations Group (COG) – Australia’s largest equipment finance broking company – currently comprises eight group entities, including Consolidated Finance Group, Platform Consolidated Group, Consolidated Platform Aggregation, and Centrepoint Finance, among other companies.
It currently covers around 17 per cent market share of the intermediated asset finance market, with 117 owned brokers and 4,988 aggregation brokers.
It has now been revealed that the ASX-listed diversified financials group will acquire all of the issued share capital of non-bank lender CML Group – the parent company of Cashflow Finance – in a merger that values the equity of CML at approximately $111.4 million.
What the merger entails
The merger is subject to court and CML shareholder approval and aims to form a “leading financial services group focusing on servicing SME businesses in Australia”, with expected revenue of approximately $265 million.
The CML board has already unanimously recommended that shareholders vote in favour of the scheme (in the absence of a superior proposal and subject to an “independent expert” agreeing that the scheme is in the best interests of CML shareholders).
The groups said that there would be “significant revenue synergies” achieved through cross-selling CML’s “established SME finance products through COG’s extensive finance broking network”.
“Combining these two companies provides a material cross-selling opportunity, in particular an ability to offer COG’s SMEs with an invoice financing product and the ability to better leverage debt inside its equipment financing business,” the prospectus says.
Other benefits of the merger include reduced corporate overheads and lower ASX and compliance costs.
The announcement comes just days after CML Group revealed that it had completed its purchase of Classic Funding Group (CFG). The COG/CML merger therefore includes the CFG business.
CML shareholders will have the option to elect to receive 100 per cent of the scheme consideration in COG shares or receive a mixture of cash (at $0.24 per share) and COG shares.
Both groups have also announced the launch of simultaneous equity raisings via pro rata non-renounceable entitlement offers of approximately $20.2 million for COG and $14.5 million for CML.
According to COG, its equity raise will help it meet its commitments to pay COG shareholders should they choose the cash and share option, while CML has said that it intends to “give existing shareholders the opportunity to increase their stake in the company prior to the transaction and “rebalance” its balance sheet following its recent acquisition of Classic Funding Group.
If approved, it is expected that the merger will take effect from February 2020 and would see COG CEO Andrew Bennett assume the role of CEO of the merged group, while CML CEO Daniel Riley would become executive director. The board of directors would consist of multiple existing directors from both COG and CML.
The merger will see CML list on the Australian Securities Exchange (ASX) initially under COG. However, it is expected that a new name for the merged group will be agreed upon between the parties once the courts have approved the scheme of arrangement.
Mr Bennett told The Adviser that the group is actively looking for “appropriate suggestions” for the new name of the merged group.
‘Compelling benefits for both sets of shareholders’
Commenting on the merger, Mr Bennett said: “The merger with CML accelerates the execution of COG’s strategic plan of delivering product to COG’s distribution network. The combined entities’ increased market capitalisation and liquidity should provide additional value to shareholders.
“We see this transaction as a partnership, with compelling benefits for both sets of shareholders,” he said.
Mr Bennett went on to tell The Adviser: “As we’re an asset finance group and our strategic plan is to deliver additional finance products to our broker network, this merger helps us achieve that, as it will result in a broader range of products being delivered through our distribution network – namely through CML’s invoice and equipment finance lines.
“This is just one in the universe of products that we’re going to deliver to our brokers,” he said, adding that brokers working in the COG group “will not see any difference in the day-to-day operations other than having access to a broader range of products”.
CML managing director Daniel Riley added that the board thinks the scheme “reflect[s] a compelling value proposition for CML shareholders, who will benefit from growth in lending volumes through leverage of COG’s substantial existing distribution network of asset lending brokers”.
“We see this partnership as providing the opportunity to gain market share in secured business lending at a faster rate than could be achieved independently, driving earnings growth in the merged entity to maximise shareholder value,” he said.
“The transaction will provide CML shareholders with a material interest in a substantially larger and diversified business.”
Speaking to The Adviser, Mr Riley continued that the merged group would also provide “an opportunity to better educate the brokers in the COG network on invoice finance in particular, which really isn’t sold widely through the broker community”.
He explained: “While clients will always require choice of lenders, we do feel that having the opportunity to work more closely with the brokers in the network will raise awareness and will give them increased knowledge and skills to sell a product. Therefore, as a result of CML’s own product being in the mix as an option to the client, it should not only increase awareness of the industry generally but increase volume for the company product, too.”
[Related: SME lender acquired by CML Group]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.