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ACCC raises concerns about AFG-Connective merger

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Annie Kane 7 minute read

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:

  • Reduced competition in the supply of mortgage aggregation services to brokers;
  • Increased risk of the ability and incentive to reduce commissions payable to brokers, increase fees, or reduce service levels;
  • Increased risk of the ability to raise costs and reduce service levels for lenders, especially non-major lenders;
  • “Substantially” reduced competition in the supply of mortgage distribution services to lenders in Australia, particularly non-major lenders. This largely related to the increased risk of AFG and Connective leveraging their own white label products into the supply of home loans and “grow by foreclosing rival lenders” by denying access to its panel, raising costs or decreasing service levels, or inducing affiliated brokers to recommend AFG-Connective branded products over competing loans;
  • Increased risk of substantially lessening competition in the broader market for the supply of home loans to consumers. 

“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:

  • increasing or exercising its market power (e.g. by reducing commissions, increasing fees or decreasing service levels) in the supply of mortgage aggregation services to brokers;
  • increasing prices or decreasing service levels for lenders; and
  • foreclosing rival non-major lenders.

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.” 


Are you interested in the issues shaping the roles of mortgage and finance brokers? Don’t miss your chance to hear about all the big ideas for the year ahead, and gain the tools you need to position your business for growth and prosperity. Book your ticket to the Better Business Summit today.  

[Related: AFG, Connective merger delayed]

ACCC raises concerns about AFG-Connective merger
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Annie Kane

Annie Kane

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. 

Email Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.



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