Andrew Abercrombie, a founder and former chief executive of humm group (FlexiRent as it was then) and currently a director and 20 per cent shareholder, has broken ranks with fellow directors by opposing the sale of the company’s consumer finance business to Latitude Financial Services.
The humm board yesterday released an explanatory booklet ahead of a humm shareholder meeting next month to vote on the deal. A majority of directors support Latitude’s offer, as does the independent expert, business valuer Kroll Australia.
But Abercrombie’s view is that the terms of the sale undervalue the consumer finance business and that a better approach would be for humm to remain in its present form, to execute on its growth plans and to do some acquisition of its own.
He has recommended that shareholders vote against the sale. He has not made recommendations in relation to the other resolutions to be put at the meeting, including a recommendation in relation to the return of capital.
In the deal struck in February, Latitude offered A$335 million for the humm consumer finance business. Consideration will be in the form of 150 million Latitude shares and $35 million cash. humm said it plans to distribute the entire proceeds to shareholders.
Humm will continue as a listed company operating its commercial finance business, with plans to change its name to Flexi Capital Group Ltd.
Abercrombie said the Latitude bid was timed opportunistically following a period of COVID-affected operations and does not adequately reflect the value of the business or adequately pay for growth or synergies. He said the business is being sold at a low point.
He said Latitude expects around $65 million of pre-tax annualised synergies. At Latitude’s then current (April 7) earnings multiple of 7.4 times, these synergies are worth $337 million. Humm has not been fairly compensated for these synergies.
Abercrombie compared the multiple of enterprise value to annualised gross merchandise volumes in the Latitude offer to multiples for Afterpay, Sezzle, Klarna, and Quadpay. He said the humm valuation, at 0.3 times, is much lower than all other valuations.
He also said the price to net tangible asset multiples in the recent Afterpay and Sezzle takeovers were much higher than in this deal.
He said the humm business is profitable and well-funded through capital markets at a time when other consumer finance companies, especially BNPL providers, are reporting losses, struggling to fund growth and have no clear path to profitability. Such an environment could present opportunities for humm to consolidate.
The majority directors’ view is that humm shareholders could benefit from the increased scale of the combined humm consumer business and Latitude through receiving Latitude shares.
It pointed to the independent expert’s assessment that the offer price is fair and reasonable, given a $260 million to $309 million valuation of the humm consumer business on a controlling interest basis.