KKR bets on lending with $665m takeover of Pepper

Non-bank lender Pepper has accepted a $655 million takeover offer from US-based KKR.

Non-bank lender Pepper has accepted a $655 million takeover offer from US-based KKR

Non-bank lender Pepper has accepted a $655 million takeover offer from US-based KKR, as the private equity firm bets on the boom in non-bank lending for residential mortgages in Australia and Asia. Pepper said it would recommend shareholders accept the offer of $3.60 per share from KKR, which represents a 5 per cent premium to Wednesday’s closing share price of $3.43.

Shareholders have the option of choosing an equity alternative if they wish to retain an interest in the home loan and servicing business. “After careful consideration we believe this offer is consistent with the board’s efforts to deliver maximum value for shareholders. We believe it represents a compelling opportunity for shareholders, allowing them to choose to either obtain liquidity for their shares at an attractive valuation or remain invested in the Pepper business,” Pepper chairman Seumas Dawes said.

Mr Dawes, alongside CEO Michael Culhane and chief financial officer Cameron Small, who own a combined 35.5 per cent of the company, have advised they will vote in favour of the deal.

The board will also pay an interim dividend of 3c per share, fully franked, related to the half year through June 30.

Pepper, which listed on the Australian Securities Exchange in mid-2015 at $2.60 a share, last year posted a 26 per cent lift in profit to $61m, due in part to record home loan originations in Australia and South Korea. In Australia alone, new mortgage originations rose 36 per cent to $2.53 billion. This compares to growth of 6.5 per cent across the broader market.

While Pepper is best known as a non-bank lender, a suite of acquisitions in recent years has delivered rapid growth in its mortgage servicing business, with combined lending and servicing assets under management climbing to $52bn at the end of last year, up from $4bn in 2012. In Europe, where Pepper runs a distressed debt administration service, its asset servicing business grew 10 per cent to $45bn.

Pepper which was advised by Citi, saw its shares jump 4.4 per cent to $3.58, before falling back slightly to close at $3.53.