No deal after Bank of Queensland talks with BNPL firm Humm Group

The Bank of Queensland has confirmed it held discussions with buy now, pay later firm Humm Group but says those conversations have now ended without a deal.

BoQ confirmed it had conversations with Humm Group but those talks have now ended. Picture: NCA NewsWire/Jono Searle

The Bank of Queensland has confirmed it held discussions with buy now, pay later firm Humm Group but says those conversations have now ended without a deal.

“BoQ had a high-level conversation with representatives from Humm in December,” the bank said in a statement. “No BoQ proposal regarding a transaction was presented and there is no intention to acquire Humm Group.”

Sources close to the discussions said the BoQ’s chairman, Patrick Allaway, was furious with a leak to The Australian – which reported that the bank was one of the parties in discussion with Humm.

Humm – previously known as FlexiGroup – had in early December told the ASX that it received approaches “from third parties to acquire all of part of (the group)”.

The company did not disclose who had made those approaches.

Humm shares closed 5 per cent higher on Thursday at 94c. That gives Humm a market capitalisation of $463m, although its internal calculations – disclosed to investors in a presentation in November – suggest that the business could be worth more than $1.1bn, with its new focus on buy now, pay later products worth some $556.6m alone.

Despite confirming its discussions with Humm to The Australian, the BoQ told the ASX that it was “not pursuing the transaction as speculated” on Thursday.

Humm had told the ASX, when it disclosed the approaches on December 20, that there was “no assurance that any transaction will occur”. It has engaged investment advisers Flagstaff Partners as it works through the proposals.

The Australian’s DataRoom column has already reported that Latitude Financial, one of the country’s largest consumer financial services firms, had separately expressed interest in Humm’s non-commercial leasing business.

Humm rebranded from FlexiGroup in August 2020 and began an aggressive expansion into the buy now, pay later sector.

In October, UBS equity analyst Apoorv Sehgal told clients that the buy now, pay later part of the business was expected to be the biggest driver of growth “supported by a rebound in cards (as borders reopen) and continued expansion in commercial”.

Humm provides BNPL services to small businesses, and credit card products in a partnership with MasterCard.

“A key debate for investors was understanding the level of cost investment in BNPL (particularly in UK/Canada) required to support top-line growth,” Mr Sehgal wrote to clients in October.

Macquarie analysts told their clients that Humm’s medium-term targets “appear aspirational at this stage”.

“As is often the case with medium-term targets they are materially above our expectations,” the analyst note reads.

“The market will need to see evidence of delivery and earnings upgrades before this will be incorporated into expectations.

“The largest disconnect between our forecasts and the targets appears to be in product yields with management highlighting the potential for increased interchange and customer fees to drive BNPL yield expansion.

“Given the competitive dynamics at play in the space this does appear to be an optimistic assumption, or alternatively will come at the expense of growth.”

Sources close to the BoQ discussions said that, even if talks had progressed further, there was limited appetite for any major acquisition given the bank had this year raised more than $1.3bn when it acquired ME Bank.

However, BoQ chief executive George Frazis earlier this year said it was clear that banks needed to find partnerships with buy now, pay later operators.

“For me, it is really important to partner up with a leading player,” Mr Frazis said in March.

Humm’s chief executive, Rebecca James, was speaking at the same forum as Mr Frazis, and said: “We are going to absolutely see more banks participate in this.”

BoQ shares ended Thursday 3c lower at $8.20.