The lender is set to acquire 65 per cent of the major asset finance broking platform for $78 million in cash.
Non-bank lender Pepper Money Limited (Pepper Money) has executed binding agreements to acquire a 65 per cent interest in Stratton Finance Pty Limited (Stratton) for $78 million.
The transaction values Stratton at $120.0 million on a debt-free/cash-free basis, with the 65 per cent interest acquired by Pepper Money for $78.0 million in cash (subject to customary adjustments), in part funded from a drawdown on Pepper Money’s corporate debt facility and in part from existing Pepper Money cash.
The deal is expected to bolster Pepper’s existing asset finance business. Stratton Finance is one of Australia’s leading online asset finance broking platforms, with more than 23 years of operating experience. It has 157 employees supported by a national network of offices (with its head office in Melbourne) and franchises.
The group has been growing in recent years and financed a net amount of $697.9 million for the financial year ended 30 June 2021 (FY21), up 28 per cent year-on-year.
According to Pepper, the acquisition would not only provide it with a new and immediate avenue for sustained incremental origination volume for Pepper Money’s asset finance business, but also broaden its distribution footprint through Stratton’s broker base and franchise network, and provide the Stratton network with access to all Pepper Money’s products across mortgages, personal loans and commercial real estate loans.
Other benefits include cost synergies through vendor and other optimisation and more customer data and insights, which could aid Pepper Money’s product development pipeline.
Speaking of the deal, Pepper Money’s chief executive Mario Rehayem said: “We started our asset finance business at the end of [calendar year] 2014 and have organically grown the business to $3.9 billion in AUM, making us the leading non-bank asset finance lender in Australia. It is a strong business that provides us with diversity of income and enhances our margins.
“Our acquisition of the 65 per cent stake in Stratton will enable us to accelerate the growth of the asset finance business, by providing opportunities to grow our direct-to-consumer offerings and leverage Stratton’s broad customer data to continue to develop innovative customer focused solutions.
“Stratton is a business that is strongly aligned with Pepper Money’s core values and its purpose built technology already connects with Pepper Money’s asset finance Solana platform, positioning us to continue to drive strong business growth.
“We remain committed to the finance broker market and are excited about this opportunity to work closely with Stratton on developing products and offerings to support a wider range of customers.”
Stratton Finance’s chair, Rob Chaloner, commented: “Our relationship with Pepper Money has grown considerably over recent years with Pepper Money today being our largest funder of auto and leisure assets.
“Our businesses share a similar culture with a strong focus on customer satisfaction. The acquisition announced today provides us with closer alignment with Pepper Money and its strong track record of product innovation which we will be able to integrate into our lending and technology capabilities to provide seamless customer experiences with enhanced choice and value.
“We are excited about the vertical integration and growth opportunities that this partnership will bring.”
Option to buy remainder
Pepper has also secured a put-and-call option in relation to the remaining 35 per cent stake in Stratton, exercisable from the first quarter of 2024 through to the first quarter of 2026.
The remaining 35 per cent stake, should Pepper take it up, has a base price of $42.0 million indexed based on Stratton’s performance in the period between completion of the 65 per cent acquisition and the time in which they seek to take on the remainder.
The acquisition, subject to Foreign Investment Review Board (FIRB) approval and other customary conditions, is anticipated to complete in the third quarter of this calendar year.
[Related: Pepper launches new near-prime loan offering]