Aussie-Lendi merger deal worth about $900m

The proposed merger between online mortgage broker Lendi and CBA-owned Aussie is set to further shake up the broking market.

Lendi co-founder and boss David Hyman is expected to run the merged Lendi-Aussie business. Picture: Jane Dempster

The mortgage broking sector is set for yet another shake-up through consolidation, as stakeholders push ahead with a merger between Lendi and Commonwealth Bank-owned Aussie Home Loans said to be worth about $900m.

Sources told The Australian that was the valuation parties were ascribing to the mooted deal, and the objective was to consider listing the combined company on the ASX in about two years. The transaction was a relative value deal, where minimal cash changed hands, although CBA is extracting “deferred consideration” and a $105m dividend from Aussie prior to completion.

The agreed transaction between online broker Lendi and CBA is set to further change the broking market, as two other mergers and acquisitions also await finalisation. The Lendi-Aussie tie up creates a group with a combined loan book of more than $77bn and about 1200 brokers.

Under the proposed deal structure, Lendi investors will hold the majority shareholding of 55 per cent in the merged business, while CBA will hold 45 per cent and continue to provide funding for the Aussie Select branded home loan product. Along with Lendi’s four founders, ANZ and Macquarie Group are among its shareholders.

 

The transaction value was not disclosed in a joint statement on Wednesday, and the deal requires a green light from the competition regulator. Transaction completion is expected by mid-calendar 2021.

The Australian last month flagged the parties were putting the finishing touches on a deal. The transaction also marks new investment bank Barrenjoey’s first formal mandate. It worked with law firm Ashurst to advise Lendi, while CBA took counsel from UBS.

CBA has been weighing a divestment of its mortgage broking interests over several years, as part of a broader divestment spree which has seen it retreat to core areas of banking.

The announced transaction also comes as broking aggregator groups AFG and Connective are awaiting a court judgment so they can complete a marriage. National Australia Bank is also exiting mortgage broking by agreeing to sell FAST, Choice and PLAN to Loan Market Group.

The Lendi and Aussie deal gives the former access to the well-known Aussie brand and a national network across about 1000 brokers and some 210 stores. Aussie gets access to Lendi’s proprietary digital technology and platform.
The statement said the merged business would maintain a multibrand strategy.

Lendi boss and co-founder David Hyman said the business combination would create “a powerhouse” in the mortgage broking sector.

“The opportunity is to take the complementary strengths and put them together,” he added. “The velocity of the tech rollout is still to be planned … I’d be really surprised in two or three years time if the whole business hasn’t migrated over (to Lendi’s technology platform).”

Mr Hyman is working with Aussie chief executive James Symond on the operating structure of the new group and the strategy.

“This is a pure growth play,” Mr Symond said. “I’ve committed to be in the business for some years.”

In a separate statement, CBA said the transaction was not expected to have a material financial impact on its capital position.

CBA chief executive Matt Comyn said: “We believe the combined business will have a stronger platform to offer enhanced digital capabilities for Aussie brokers and a superior experience for customers.“

The bank bought Aussie in a series of tranches culminating in the final 20 per cent stake being sold to CBA in 2017. The last selldown delivered Aussie an $820m valuation.

The move to put Lendi and Aussie together is an interesting one given their respective sizes and focus.

Aussie has a 29-year history, store network and a loan book of about $70bn, while Lendi was started as a digital disrupter almost eight years ago and has a loan portfolio of about $7bn. The latter was founded by Mr Hyman, Sebastian Watkins, Martin Lam and Mark Kalajzich.

Aussie founder John Symond, James Symond’s uncle, started the group and up-ended the mortgage market in the 1990s by taking on the stranglehold of the big banks.

Last month, James Symond said Aussie posted a record October, which was also its second strongest month ever for home loan applications. Record low interest rates and strong refinancing activity are helping fuel bumper demand for mortgages.

Despite the emergence of three banks as shareholders, Mr Hyman said Lendi was prioritising the firm’s independence and that would be reflected in an eventual board structure.

Wednesday’s statement noted ANZi, a subsidiary of ANZ, was supportive of the transaction including the investment of “an additional capital amount” to the merged group.

“Approval of the transaction and investment of any additional capital by ANZi would be subject to the transaction terms and documentation being acceptable to ANZi, and receipt of ANZ group approvals and any necessary regulatory approvals,” it said.

In January, mortgage brokers will be bound by a new duty to act in customers’ best interests. They receive upfront and ongoing commissions from banks and other lenders for loans they submit.

The broking industry was spared an overhaul of the commission structure by the federal government when it provided a response to the Hayne royal commission recommendations last year.