Latitude says competition is being ‘knocked about’, seals Humm consumer unit buy

Latitude’s acquisition of Humm’s consumer unit delivers it more scale at a time it sees a shakeout looming in the fintech and BNPL sectors.

Latitude boss Ahmed Fahour says ‘for those that have money and make profit, I guess our time has come’. Picture: NCA NewsWire / Ian Currie

Latitude’s acquisition of Humm’s consumer-finance unit will deliver it greater scale as well as cost and revenue benefits, at a time when competition risks being “knocked about” by a shakeout in the fintech and buy now pay later sectors.

Latitude announced the transaction in January and has since completed a period of due diligence, which led to the consumer finance group disclosing a binding $335m agreed offer on Friday.

Latitude chief executive Ahmed Fahour said the deal was agreed against a challenging backdrop for other players in the personal lending and buy now pay later industry.

“For those that have money and make profit, I guess our time has come,” he said.

“When markets are a little bit tougher, cash is king ... right now many of these fintechs - if I look across many of them who are competing out there for consumers - a lot of them are really struggling.

“If we are not careful competition is going to be knocked about and we need a strong alternative to the major banks.”

Mr Fahour was referring to areas that Latitude operates in including personal lending, interest-free purchases at retailers such as Harvey Norman, credit cards and buy now pay later. Latitude reports earnings on Monday.

The Humm board has recommended shareholders vote in favour of the Latitude transaction, in the absence of a “superior proposal”.

The deal represents 150 million Latitude shares and $35m in cash. Humm CEO Rebecca James will join Latitude and lead the combined group’s BNPL business.

The deal is expected to deliver Latitude $65m in pre-tax annual synergies, with $55m coming from removing costs in areas spanning technology, funding and duplicate functions. Latitude expects revenue synergies of $10m.

“We do see successful realisation of synergies as critical for fulfilling what is presented as a particularly accretive transaction,” Bank of America analyst James Ellis said.

Excluding the revenue benefits, the deal is expected to provide an annualised pre-tax earnings boost of $90m by the end of 2023. Humm’s consumer division has 2.6 million customers, $1.9bn in gross receivables and includes about 60,000 merchants.

If the deal proceeds the combined group will have $8.4bn in gross receivables. On completion, Humm’s consumer business will have net tangible assets of $190m, implying a lower price-to-book ratio than a month earlier.

Subject to shareholder and regulatory approvals, Humm is planning to distribute sale proceeds to investors, who will receive about 68 cents per share via 0.30 Latitude shares and 7 cents cash.

Humm will be left with just its commercial business which could also be subject to a takeover in coming months.

The sale of the consumer arm requires Foreign Investment Review Board and New Zealand Overseas Investment Office approval, as well as sign off from Australian and NZ and the Reserve Bank of New Zealand.

Mr Fahour said he was “very comfortable” around early engagement with regulators and getting the transaction across the line.

On rising interest rates, Mr Fahour said he didn’t expect Latitude’s customers to be too adversely impacted given the incremental increase in repayments was a lot less than for a residential mortgage.

He also noted the bulk of Latitude’s business reflected interest-free transactions, where the cost was borne by the merchant.

Humm chairman Christine Christian said: “This is a transformational transaction for Humm Group. The combination of Humm consumer and Latitude will create a leading pure-play consumer finance business, a significant and profitable company able to compete at scale.”

The combined Latitude and Humm consumer business will focus more on big ticket buy now pay later transactions of up to $10,000.