FIRSTRAND has agreed a £1.1bn (R20.49bn) takeover of British banking newcomer Aldermore Group to boost its business in developed markets.
The 313 pence per share offer represents a 22.3% premium to Aldermore’s closing price of 245 pence on October 12, the day before the companies announced they were in talks.
Aldermore is one of a group of so called challenger banks that emerged after the financial crisis to fill a gap in small business lending and capitalise on problems at bigger lenders such as Royal Bank of Scotland and Lloyds.
However, they have been seen as ripe for takeovers recently after a prolonged period of low interest rates and sluggish British economic growth squeezed earnings, while the pound’s fall has made them cheaper for foreign buyers.
FirstRand has been looking to return to developed markets following a rethink of its strategy prompted by slowing growth and rising risks elsewhere in Africa. It already runs MotoNovo, a vehicle financing business, in Britain.
African markets have been depressed by a slump in oil and other commodity prices, export mainstays of many economies, leading companies to scale back operations. Aldermore was founded in 2009 by a former Barclays executive with backing from private equity firm AnaCap. AnaCap said it welcomes the news of the takeover.
FirstRand said yesterday further growth could be unlocked in Britain through cross-selling the current product range across MotoNovo and Aldermore’s customer bases.
Aldermore is a UK-based and LSElisted bank providing asset finance, invoice finance, mortgage and deposit products to small and medium-sized enterprises, homeowners, landlords and savers.
FirstRand said its strategy is to achieve a more diversified revenue profile across products, segments and geographies. Currently 4% of total group earnings is generated by the group’s UK business MotoNovo, one of the largest providers of motor finance for second hand vehicles in the country. The success of this business, since it was acquired in 2006, can largely be attributed to the introduction of WesBank’s operating model.
“Aldermore will allow FirstRand to allocate more financial resources to our operations in Africa while diversifying earnings in the UK,” FirstRand CEO Johan Burger said.
Aldermore has been one of the better performing UK challenger banks.
It released its third-quarter earnings yesterday, reporting higher ninemonth new lending at £2.4bn thanks to strong demand from small and medium sized businesses, homeowners and landlords.
Once the deal, which will be put to a vote by Aldermore’s shareholders, completed, FirstRand’s UK retail and SME operations will be joined with Aldermore, the African lender said. Aldermore’s CEO Phillip Monks will head the new combined UK business.
Burger said FirstRand had carefully considered how current and potential macroeconomic future scenarios in the UK could impact the broader business. – With Reuters