After a long hiatus, there are some early signs of corporate activity bubbling away in the non-lender space, and one theory doing the rounds is that the Kohlberg Kravis Roberts-backed Pepper Money could be back in focus.
Some fingers are pointing to the private equity firm Apollo Global Management, which was understood to have held talks with the company about 18 months ago.
It’s understood that Apollo has not made any recent approaches to Pepper, but some wonder if that may soon change, as it looks to get in at the bottom of the market before the Reserve Bank starts cutting interest rates.
Pepper’s share price has been relatively stable in the past year, with its market value around $600m.
Last year, there was some talk that Melbourne-based private equity firm BGH Capital was looking at the business, but is believed to have moved on.
KKR, with a 60 per cent interest, is known to be a seller after buying Pepper in 2017, largely because of its European platform.
The logic for Apollo’s move is that it owns two large insurance firms, Athene and Athora, and it’s typical for insurance companies to want high quality debt instruments, which Pepper originates. This would allow it to cut out the middle man for funding debt securities for its insurance businesses.
Another reason that a deal makes sense is that top banks have a limit on how much tier one capital they can provide to any one customer, creating concerns that groups like Westpac are at capacity in terms of how much they can provide for groups like Pepper for thier warehouse facilities.
But Pepper says it has a $10bn warehouse and is far from being near capacity, announcing the pricing of a new $1.25bn securitisation program last week.
Apollo has various funding warehouses globally.
Apollo has shown an interest in the Australian lending market in the past and has an 18 per cent interest in Challenger, which once offered mortgages as part of its business.
Last year, the valuations of non-bank lenders fell.
During the pandemic Pepper Money was listed as a business worth $1.3bn by KKR.
KKR also partially owns the listed non-bank lender Latitude, and one source suggested it would be eager to offload some of its Australian investments.
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