FirstRand spreads wings with 1.1 billion pound Aldermore deal

FirstRand spreads wings with 1.1 billion pound Aldermore deal

Reuters  | Nov 06, 2017 12:29

FirstRand spreads wings with 1.1 billion pound Aldermore deal

By Lawrence White and Noor Zainab Hussain

LONDON (Reuters) - South African lender FirstRand (J:FSRJ) has agreed a 1.1 billion pound takeover of British banking newcomer Aldermore Group (L:ALD), seeking to grow its revenue beyond its home continent.

South Africa's biggest lender by market capitalisation said the deal would complement its existing motor finance business in Britain, MotoNovo.

FirstRand, with a market capitalisation of 300 billion rand (£16.1 billion), earns 89 percent of its revenue in South Africa, where a weak economy and high personal debt levels have weighed on profits.

The acquisition of Aldermore would help the bank boost the contribution of its British business to overall income from around 4 percent to 10 percent, FirstRand Deputy Chief Executive Alan Pullinger said.

The deal represents a risk for the African bank given a possible downturn in Britain's economic fortunes after it leaves the European Union and regulators' concerns about high levels of consumer debt.

"For us, given the challenges we see in our home markets, Brexit is a relative issue and even a hard Brexit is not as scary for us as perhaps for some others," Pullinger said.

Overseas buyers have announced more than $11 billion (£8.4 billion) worth of investment into UK financial services so far this year, according to Thomson Reuters data, compared with $12 billion in the same period last year and a $15 billion average over the last decade.

FirstRand's 313 pence per share offer represents a 22.3 percent premium to Aldermore's closing price of 245 pence on Oct. 12, the day before the companies announced they were in talks.

At 1220 GMT, Aldermore's shares were up 2.5 percent at 309.8 pence. FirstRand's shares were up 1.9 percent at 53.4 rand.

CHALLENGER BANKS

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 (L:RBS) and Lloyds (L:LLOY).

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.

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 private equity firm AnaCap, which hired former Barclays (LON:BARC) executive Phillip Monks to run the new lender. AnaCap said in an email statement that it welcomes the news of the takeover.

Analysts at Canaccord Genuity, who rate Aldermore as "hold", called the offer reasonable.

BROADENING THE BASE

FirstRand said on Monday that further growth could be unlocked in Britain through cross-selling the current product range across MotoNovo and Aldermore's customer bases.

"It (Aldermore) will allow the FirstRand to allocate more financial resources to our operations in Africa, whilst 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 on Monday, reporting higher nine-month new lending at 2.4 billion pounds 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 -- is finalised, FirstRand's UK retail and SME operations will be joined with Aldermore, the African lender said. Aldermore's Monks will head the new combined UK business.

"We've developed into a multiproduct diversified lender, and having spoken to FirstRand we can expand and accelerate that strategy in the UK," Monks told Reuters.

JPMorgan (NYSE:JPM), RBC Capital Markets and Lazard are advising the British company. Credit Suisse (SIX:CSGN) and Rand Merchant Bank are acting as financial advisers to FirstRand.

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