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Connective backs merger utility amid ACCC doubts

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Charbel Kadib 8 minute read

The proposed merger with AFG will deliver “great outcomes” for brokers and their customers, Connective director Mark Haron has said in response to questions raised by the ACCC.

Earlier this week, the Australian Competition and Consumer Commission (ACCC) raised preliminary concerns regarding the Australian Finance Group’s (AFG) proposed merger with competitor, Connective.

If approved, the merger 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, which values the acquisition at $120 million.  


However, in its statement of issues, the ACCC noted competition concerns, which it claimed could arise from the amalgamation of the two major mortgage aggregators.

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. 

Speaking to The Adviser following the ACCC’s announcement, Connective director Mark Haron dismissed such concerns, adding that he is confident the aggregators will demonstrate the transaction’s utility to the corporate watchdog.  

“We were disappointed with the statement of issues from the ACCC,” he said.

“[We] have just got to do a bit more work with them to help them understand the market and the effect that the merger will have on competition.”


Mr Haron said the merger would help both Connective and AFG deliver better outcomes for their respective networks, particularly in light of regulatory reform.  

“From a Connective point of view, nothing will change; if anything, we’ll be looking to increase the capacity for us to deliver great service to brokers, particularly around compliance and the increased compliance activities that brokers will need to meet for the best interests duty,” he said.

“We’re confident that well be able to help [brokers] deliver great outcomes in regard to that and protect their businesses. 

“We feel that the combination of Connective and AFG could achieve that more effectively, which would help brokers and their customers.” 

Mr Haron added that Connective brokers with concerns about the merger are free to switch aggregators ahead of the transaction.

“As in the case right now before any merger, Connective brokers can leave us at any time with just 30 days of notice in writing,” he said.

“They can even take their loan books with them.

“If we were to do anything in terms of increasing fees inadvertently or lessening of service delivery, or our model didnt suit their future needs, then a Connective broker can leave.”

However, the Connective director said the aggregator would work to highlight the strength of its proposition to its broker network.

“Its really incumbent on us to make sure we deliver great services and do that at a price point thats competitive as well,” Mr Haron added.

“No Connective brokers are locked in, so we have to continue to be very competitive and drive that competition in aggregation and in the industry.”  

Mr Haron concluded by noting that both Connective and AFG would continue to consult with the ACCC, ahead of its final decision on 7 May, to convince the regulator of the merger’s utility.

“Well obviously have more contact with the ACCC during this period to work with them and help them understand more about the market and the competitiveness that exists in the industry to hopefully remove any concerns they have that competition would lessen if we were to merge,” he said.

Mr Haron echoed remarks made by AFG CEO David Bailey on the day of the ACCC’s announcement.

In an update to shareholders, Mr 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.” 

[Related: ACCC raises concerns about AFG-Connective merger]

Connective backs merger utility amid ACCC doubts
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Charbel Kadib

Charbel Kadib

Charbel Kadib is the news editor on The Adviser and Mortgage Business.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

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


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