Pepper Money being shopped around but high price a turn-off

Pepper Money’s high asking price is scaring off buyers.

Interest rate cuts have had bankers for private equity firm Kohlberg Kravis Roberts out once again shopping its non-bank lender Pepper Money to prospective buyers, sources say.

And DataRoom understands one of late was embarking on detailed work for a buyout.

It is understood the group was a trade player, rather than a private equity firm.

But after carrying out much analysis on Pepper, it walked away, because of KKR’s ambitious price aspirations.

It comes after reports out of Japan that the nation’s financial groups have been approached about buying the business in recent months. The latest suitor will join others, including Apollo Global Management, that have looked at Pepper Money but then walked away because they can’t agree a deal with its 60 per cent shareholder.

Another buyout fund understood to have taken a look and considered a deal in the past is BGH Capital.

KKR is known to be a seller after buying Pepper in 2017, largely because of its European platform. During the pandemic, Pepper Money was listed as a business worth $1.3bn by KKR.

Australia has been a hunting ground for Japanese financial groups in the past due to the low interest rates and low return levels in its home country.

Pepper Money’s shares started rallying strongly at the start of the month from $1.65 up to $1.86, but on Tuesday they closed at $1.75, giving it a market value at $761.2m.

The shares at the start of the year were about $1.43.

The talk was that last year KKR was only prepared to reach a deal for a price of at least $2 a share, which some had thought was too steep.

Non-bank lenders will gain tailwinds from the two recent interest rate cuts by the Reserve Bank that will lower their cost of funding. More rate cuts are on the cards.

Japanese banks are already exposed to Australia’s non-bank lending sector, with Shinsei Bank holding just under 10 per cent of the listed Latitude Financial, which also counts KKR as a major shareholder.

For the six months to December 31, Pepper Money generated $98.2m in net profit, down 9.7 per cent on the previous corresponding period.

It has $19.1bn of assets under management and generates earnings from home loans, asset ­finance and personal loans and other servicing.

Apollo this week sold its remaining stake in Challenger to TAL, a subsidiary of Japan’s Dai-ichi, taking its holding to 19.9 per cent, from 15 per cent.

Apollo reduced its holding in Challenger in September from 20.1 per cent to 9.9 per cent, selling a $420m stake at $6.51 a share after buying in at $6 a share in 2021.

Dai-ichi bought shares on Monday for $7.45, equating to 4.8 per cent of the stock.

The US-based private equity fund sold out on Monday when Challenger shares closed at $7.84.

Also up for sale is lender La Trobe Financial by owner Brookfield, with price aspirations believed to be more than $3bn.