The competition watchdog has raised preliminary competition concerns about the proposed merger between Connective and AFG relating to the size and reach of such a combined entity, and is seeking submissions on the matter from interested parties.
Last year, major aggregator Australian Finance Group Ltd announced that it was looking to acquire Connective Group Pty Ltd in a deal that would merge the two aggregators together.
The plans would see AFG acquire the assets and liabilities of Connective Group to create a significant national mortgage distribution network, with more than 6,575 brokers and combined mortgage settlements of $76 billion in FY19.
Under the transaction, Connective would receive $60 million in cash and 30,886,441 AFG shares.
This values the acquisition at $120 million.
However, the transaction is conditional upon court approval as well as approval from shareholders, the Australian Competition and Consumer Commission (ACCC) and other relevant parties.
The ACCC has now revealed that it has some preliminary concerns with the deal.
Specifically, the concerns relate to:
“Combining AFG and Connective would create the largest mortgage aggregator in Australia by a significant margin, accounting for almost 40 per cent of all mortgage brokers operating in Australia,” ACCC chair Rod Sims said.
“AFG and Connective operate in an already concentrated market, and not many other mortgage aggregators offer a similar level or type of service. Additionally, potential entrants or small players may be deterred from expanding by various barriers, including compliance costs,” Mr Sims said.
“The ACCC is concerned there will be limited similar alternatives for brokers to switch to. This may negatively impact the services offered to brokers.”
The ACCC is now seeking further information about the supply of mortgage aggregation and distribution services, and the supply of home loans in Australia from interested parties in by 5 March 2020.
It is calling on parties to address the extent to which a combined AFG-Connective could be constrained from:
The ACCC has said it will not publish submissions regarding the proposed acquisition.
Its final decision will be announced on 7 May 2020.
Noting the concerns, AFG said it will continue to work with the ACCC and Connective to progress the proposed transaction through the ACCC process, adding it was “confident the issues raised can be addressed to the satisfaction of the ACCC”.
AFG CEO David Bailey said: “We recognise the proposed AFG-Connective merger is an important transaction and always expected that the review process would take some time. We fully respect the ACCC’s comprehensive approach to its robust regulatory approval process and look forward to engaging with the ACCC to address any remaining or outstanding concerns.”
“We firmly believe there will be no substantial lessening of competition in any relevant market from AFG’s merger with Connective. In fact, the proposed transaction will generate real benefits to consumers, with much greater choice for home buyers. Mortgage brokers and lenders can expect greater investment in compliance and emerging technology, in turn providing further benefits for the customer.”
Mr Bailey continued: “While we continue to engage with the ACCC and Connective on this approvals process, it is business as usual for AFG, and we remain focused on delivering on our earnings diversification strategy.”
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[Related: AFG, Connective merger delayed]
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.
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