KKR consortium wins GE bid

A KKR led consortium yesterday concluded terms for the purchase of GE Capital's consumer finance operations in Australia and New Zealand. KKR said in a media release that the purchase was valued at an enterprise value of A$8.2 billion.

US specialist investment fund Varde Partners and Deutsche Bank joined KKR in the consortium. Each party's equity share was not disclosed.

Commercial finance operations of GE Capital are not part of the sale.

GE Capital Australia & New Zealand would "continue to build our mid-market lending portfolio and leasing businesses," Duncan Berry, chief executive for GE Capital, said in a media release.

KKR did not spell out any metrics on the businesses acquired, but Banking Day has seen details in a private investor presentation prepared by Macquarie, a runner-up in the bidding.

These put GE Capital's sales volume in consumer finance during 2014 at $8.4 billion. Of this, $2.6 billion was in sales finance, $4.2 billion in credit cards and $1.4 billion in personal lending.

The gross yield on sales finance and personal lending was greater than 19 per cent. On cards the yield was 17 per cent.

Aspects of the GE consumer business may merit more investment.

The Coles credit card joint venture, for instance, had receivables of only $750 million in 2014, only one-sixth of total cards receivables.

Still other aspects will require close management.

The main source of business for the personal loans arm is through cross-selling to consumer finance customers, mostly sourced through around 50 branches mainly based in lower economic areas in NSW. GE operates primarily in the sub-prime market.

Consumer credit insurance issued through Hallmark General Insurance
and Hallmark Life Insurance produced around $110 million in premium revenue in 2014, a market share of around 20 per cent.

"We suspect an equity cheque in excess of $2 billion will be required for the transaction," Macquarie projected late last year.