Latitude Financial valued at $2.6bn in third IPO tilt

This time around the major backers wanted to retain as much of the lender as they could, says Ahmed Fahour.

Latitude CEO Ahmed Fahour. Picture: Aaron Francis/The Australian

Non-bank lender Latitude Financial has pulled the trigger on its third tilt at the ASX boards, launching a $200m initial public offering in a move that will value the company at $2.6bn.

The offering is substantially smaller than its failed IPO attempt in 2019, but the prospect of listing without giving up too much stock appealed to its owners, CEO Ahmed Fahour told The Australian.

“Last time, we launched our prospectus, and then we went into the market to raise the necessary capital for the sell down, which was in excess of $1bn. It was much more along the ‘normal’ lines, of what you would see with an IPO,” Mr Fahour said.

“This time around, it was very different: Firstly, our shareholders didn‘t want to sell too much stock. They really wanted to hold on to as much as they could; they’re very, very excited about the business.

“And secondly, we had been approached by a strategic investor, (Japanese bank) Shinsei. We got very excited by this approach and thought, ‘Well, here we can IPO the business without needing to raise too much money.”

After the approach from Shinsei, Latitude reached out to institutions to gauge the interest in a public offering.

“We were, quite frankly, slightly overwhelmed with the demand, which ended up being quite in excess of what our shareholders said they would be prepared to sell as a secondary issue,” Mr Fahour said.

This led the non-bank lender to increase the offering to $200m, up from its initial plan of $100m-$150m.

Latitude’s current owners, KKR, Värde Partners and Deutsche Bank, will see their combined shareholding reduce to 66.4 per cent once the company is listed: 7.7 per cent of the shares will be offered through the IPO at a price of $2.60 per share, Japan’s Shinsei Bank will take 10 per cent for a previously agreed price of $300m, and minority shareholders will take a further 14 per cent of the stock.

The move comes after Latitude — previously known as GE Money — was forced to pull its second IPO attempt in October 2019 after it failed to secure enough support from offshore investors, despite repricing the float below its original range from $2 to $1.78.

That withdrawal came 12 months after the company pulled its first IPO attempt, valued at $4bn, following weeks of speculation that it would be put on hold.

The strong demand from investors in its latest effort was due to both a better appetite for IPOs, as well as the outlook for the business, Mr Fahour said.

Latitude has been working hard on boosting its profile in the past year, signing on a string of new retailers as it reaps the benefits of the working-from-home and renovation boom.

It has also signed a sponsorship deal with reigning AFL premier Richmond to further increase brand awareness.

Ahmed Fahour is CEO of Latitude Financial Services Group. Picture: Stuart McEvoy.

The lender and buy now, pay later operator also overhauled its Latitude GO MasterCard last month, introducing a six-month interest-free period on transactions above $250 and a reduced interest rate of 19.95 per cent on credit card purchases.

“The majority of our business, and where we have exclusivities and the broad range of offering, is in the bigger-ticket segment such as Harvey Norman, JB Hi-Fi, Apple, Samsung and The Good Guys,” Mr Fahour said.

“So we have these exclusive arrangements for our customers so now they can do small ticket and big ticket items at the same time (through us) and I think that‘s what’s really different (about Latitude).”

While Latitude has multi-year exclusivity arrangements with certain retailers for big-ticket items, this does not extend to smaller items. Zip Co on Wednesday announced it had entered into a partnership with JB Hi-Fi. On the same day, Latitude announced an expanded partnership with the electronics retailer that will see LatitudePay available to shoppers alongside its long-term interest free offering.

As competition in the buy now, pay later sector ramps up, Morningstar analyst Shaun Ler questioned Latitude’s ability to compete with the market leaders.

“Buy now, pay later operators need to have an offering that is simple, quick to sign up to and easy to understand. You also need to be an early player into the space and I think Latitude is just late into this.

“When you think about Afterpay and Zip you think of these fast, up-and-coming exciting operators with a product that you can trust. Latitude, on the other hand, seems to be a traditional finance firm trying to reinvent itself,” Mr Ler told The Australian.

Ahead of the prospectus lodgement, Latitude secured $479m of commitments from strategic, institutional and retail investors, including the $300m from Shinsei, with the $200m offer fully underwritten by joint lead managers BofA Securities, Credit Suisse and Jefferies.

Insight Capital cornerstoned the institutional offer.

The IPO comprises an institutional offer, a broker firm and an employee offer. The broker firm and employee offer is scheduled to open on April 12 and will close on April 16. No general public offer of shares will be made.

The shares are expected to start trading on the ASX in the week commencing April 19.