The group is considering shedding its consumer arm and only offering business loans, as it continues to target growth in the broker channel.
Humm, formerly known as FlexiGroup, confirmed last week that it had received a proposal from non-bank lender Latitude Group, for the purchase of its buy now, pay later (BNPL) and credit card business, Humm Consumer Finance.
Latitude has offered around 150 million shares in its company (worth $300 million, based on a $2 share price) and $35 million cash in exchange, equating to a total value of $335 million.
If successful, Latitude would combine the consumer lending business with its existing BNPL and instalment division, while Humm would retain its commercial finance arm.
The two companies have entered into a non-binding heads of agreement, with the pair to complete due diligence and negotiations for a definitive deal. Any binding agreement will be subject to due diligence, documentation and board approval, from both groups and the completion of the transaction is also expected to need regulatory and shareholder approvals.
Humm has begun to review structure and execution mechanics and it has signalled the potential to become a “pure play” commercial lender.
In August, the company flagged that it had plans to invest in and grow broker interactions with its SME lending business, FlexiCommercial, with group chief executive Rebecca James calling the channel a “standout performer”.
Humm has now reported the broker strategy doubled its volumes year-on-year for the first quarter of the 2022 financial year.
It followed growth for FlexiCommercial in FY21, with 55.6 per cent growth in commercial and leasing volumes, to $540.3 million, while cash net profit had more than quadrupled, up 431 per cent to $22.3 million.
“As a standalone ASX-listed commercial business, [Humm’s] market position across Australia and New Zealand would be underpinned by robust standalone operational and technology platforms and an appropriate capital base,” the company stated.
“[Humm’s] board and management believe the commercial business has significant organic and strategic growth potential.”
Christine Christian, chair of Humm, added shareholder value will remain her board’s priority when assessing the deal.
“In this context, we believe that the Latitude proposal is potentially attractive to [Humm] shareholders and warrants due diligence and detailed negotiation,” she said.
Meanwhile, Latitude believes the acquisition would cement its position as an instalments and consumer lender in Australia and New Zealand, eyeing Humm’s big and small-ticket BNPL transactions. Latitude managing director and CEO Ahmed Fahour noted “highly deliverable synergies”, while the company pointed to the gaining of scale at minimal cost.
As at 30 June 2021, Humm’s consumer business had around $1.8 billion in net receivables. The deal would create a combined Latitude Group with more than $8 billion in receivables, over 5 million customers and 70,000-odd merchants.
The transaction would follow Latitude’s acquisition of personal lending fintech Symple Loans last year, which it bought for $200 million.
As outlined in Latitude’s proposal, Humm Group CEO Ms James would lead the combined BNPL business, reporting to Mr Fahour.
Further, Latitude has outlined intentions to invite two Humm directors to join its group board.
“The proposed transaction would enable us to accelerate the deployment of BNPL and instalment solutions for our customers and merchant partners in Australia/New Zealand and accelerate our growth in our international markets,” Mr Fahour commented.