The Humm Group Ltd (ASX: HUM) share price is rising after announcing the sale of its consumer finance business to Latitude Group Holdings Ltd (ASX: LFS).
Humm sale
The diversified financial business Humm Group has announced it’s selling the Humm consumer finance business (HCF) to Latitude.
HCF comprises the buy now, pay later segment, instalment and credit card operations of the company.
How much is Latitude paying for HCF?
Latitude is going to pay a total consideration of $335 million. This represents 13.4 times the cash net profit after tax (NPAT) of the business.
It will be paying 150 million Latitude shares as well as $35 million cash. Those proceeds will be fully distributed to Humm shareholders.
Why does this deal make sense?
Aside from just getting a decent price from the deal, Humm shareholders will also get to benefit from the combination.
It will be a bigger combined business and more profitable, which will be able to compete at scale. The company will get additional capital to accelerate domestic and international market share growth. There will be a “stronger value proposition” for merchants, retailers and customer partners. Shareholders will also get the benefits of the synergies.
Does that mean that Humm is going to de-list?
Humm Group will retain full ownership of Humm Group’s “strongly performing” commercial business and remain as a standalone listed entity.
What will the remaining business look like?
This business will be Australia and New Zealand’s leading provider of specialist asset finance with over $1 billion in receivables.
Some of the advantages that this business will include the speed of reaching decisions and fund applications, and specialist offering for capital intensive businesses.
Humm points to a large and under-served addressable market of $49 billion across Australia and New Zealand within a broader $430 billion small and medium enterprise (SME) lending market.
Humm says it’s a profitable, growing business with a strategy to build a larger financial services business through organic growth and acquisitions.
Final thoughts on the Humm share price
Investors seem to be a fan of the deal, with Humm shares rising. It’s interesting that Humm wants to go ahead with this and become a lot smaller. Do Humm shareholders want a significant exposure to Latitude shares? Management must think it’s a good enough deal to go ahead with.
It’ll be interesting to see how Humm goes in the longer-term if and when this deal goes ahead.
