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REA Group to acquire Mortgage Choice

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Malavika Santhebennur 7 minute read

The multinational property services group has announced a proposal to acquire 100 per cent of Mortgage Choice for $244 million by way of a scheme of arrangement.

REA Group has announced that it has entered into a scheme of implementation arrangement (SIA) with major brokerage Mortgage Choice to acquire 100 per cent of the outstanding shares in the brokerage.

The offer represents an enterprise value of around $244 million, while the property services group is seeking to acquire the outstanding shares for $1.95 cash per share by way of a scheme of arrangement.

The group will add the Mortgage Choice enterprise to its global operation, which includes franchise broking group Smartline.

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Combining Smartline and REA Group’s audience and data insights with Mortgage Choice would create an Australian mortgage brokerage with over 900 brokers and “significant growth opportunities”, the major brokerage said.

The transaction is still subject to conditions being met, including Mortgage Choice shareholder and regulatory approvals.

It is expected to take approximately three months to complete, with the scheme expected to complete in mid-2021.

According to REA Group the proposed acquisition aligns with its financial services strategy by:

  • Leveraging the group’s digital expertise, high-intent property-seeker audience, and data insights across a larger network;
  • Providing an opportunity to establish a mortgage broking business with increased scale; and
  • Complementing the existing Smartline broker footprint, and increasing the national broker coverage.

It added that the proposed transaction is expected to be immediately earnings-per-share accretive for the group, with potential for future cost and revenue “synergies”.

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According to the ASX announcement, the Mortgage Choice board has unanimously recommended that Mortgage Choice shareholders should vote in favour of the scheme in the absence of a superior proposal, and subject to an independent expert concluding (and continuing to conclude) that the scheme is in the best interests of the major brokerage’s shareholders.

The scheme is subject to customary conditions, including Mortgage Choice shareholder approval, court approval, approval from the Foreign Investment Review Board (FIRB), no material adverse change, and no prescribed occurrences, as well as the independent expert concluding that the scheme is in the best interests of Mortgage Choice shareholders.

“In addition, the SIA contains customary exclusivity provisions including no-shop, no-talk, notification and matching right obligations (subject to standard fiduciary carve outs),” the ASX announcement said.

“REA and Mortgage Choice have also agreed break fee and reverse break fee arrangements. A break-fee of $2.4 million is payable by Mortgage Choice to REA in certain circumstances and a reverse break-fee of $2.4 million is payable by REA to Mortgage Choice in the event of termination of the SIA by Mortgage Choice due to material breach by REA.”

Subject to initial court approval, a scheme booklet containing information relating to the scheme, the independent expert’s report, and the reasons for Mortgage Choice’s board recommendation is expected to be provided to Mortgage Choice shareholders in May 2021.

A shareholder meeting for the brokerage shareholders to consider and vote on the scheme is expected to be held in June, following which final court approval will be sought.

If approved, the scheme is expected to be implemented by the end of June 2021.

The transaction is expected to be funded by an increase in REA’s syndicated debt facilities, REA Group said.

The existing $170-million syndicated debt facility, which is due to expire in December 2021, is expected to be partially refinanced as part of this process.

REA Group has appointed Goldman Sachs as its financial adviser and King & Wood Mallesons as its legal adviser to assist with the transaction.

Mortgage Choice has more than 500 brokers and 380 franchises across Australia, and over 30 lending partners.

It reported a loan book of $54 billion and settlements of $11 billion in the 12 months to December 2020 in its FY21 half-year results investor presentation.

According to the brokerage’s interim financial report for the half-year ended 31 December 2020, Mortgage Choice reported net revenue of $22.2 million, and net profit after tax of $4.1 million for the six months to December 2020

A focus on digital capabilities and ‘sustainable growth’

Commenting on the proposed acquisition, Mortgage Choice CEO Susan Mitchell said: “We are very excited to be partnering with REA. Their presence across the property ecosystem and strong digital capability will cement Mortgage Choice’s place as one of the top broking groups in Australia. This will enable us to operate at much greater scale and amplify our service offering to brokers and customers.”

“My focus over the past three years has been to set the business up to drive sustainable growth. Our businesses are highly complementary and this will fast-track that growth, advance digital pathways to increase customer acquisition and provide an altogether stronger offering to franchisees.”

Mortgage Choice chairman Vicki Allen commented: “This is a fantastic milestone for Mortgage Choice. Joining the REA network creates a significant opportunity to leverage its deep digital capabilities and expertise, combined with access to a large and engaged consumer audience.”

REA Group CEO Owen Wilson said: “The acquisition of Mortgage Choice represents an exciting opportunity for REA to create a leading broking business. It builds on our success to date, accelerating our financial services strategy while leveraging our existing strengths and capabilities.”

“The proposed acquisition of Mortgage Choice is an exciting development that will bring together our well-established Smartline business and franchisee network with the complementary Mortgage Choice organisation and its significant broker footprint.

“Each month, 12 million Australians turn to realestate.com.au to search, find and finance their next property. Together with our Smartline business, having Mortgage Choice join the REA network will enable us to provide our audience with an even greater number of expert brokers to meet their financing needs.”

Smartline CEO Sam Boer added: “Like Smartline, Mortgage Choice is grounded in strong values, a commitment to innovation, value-added client services and has a talented and passionate team. We are looking forward to working with a like-minded organisation and welcoming Mortgage Choice into the REA family.

“Between now and the completion of the acquisition, there will be no change to the service, support or products our clients receive from Smartline. Once the transaction completes, we look forward to working with Mortgage Choice to add further value to our clients, franchisees and business partners.”

[Related: Major brokerage launches online community]

REA Group to acquire Mortgage Choice
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Malavika Santhebennur

Malavika Santhebennur

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.

 

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