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The board of directors (the "board") of Provident Financial plc ("Provident Financial" or the "group"), the leading UK non-standard lender, announces that it has agreed to acquire the entire issued share capital of Duncton Group Limited for £120 million (the "acquisition"). Duncton Group Limited and its subsidiaries operate under the Moneybarn brand, and together form the UK's largest non-standard vehicle finance group ("Moneybarn").
Founded in 1992, Moneybarn provides car finance to non-standard customers in the UK, operating mainly through brokers with additional distribution sourced through independent car dealers and from its website directly to customers. The business offers secured car loans, predominantly through conditional sale agreements and with the car typically used for necessities such as travelling to work rather than for luxury or discretionary purposes.
The acquisition of Moneybarn broadens the product offering to the group's target customer base and creates a third leg of earnings that complements the organic growth opportunities available to the group. Moneybarn's origination has been muted recently, given funding constraints, and this leaves scope for growth going forward. The board believes that the business is highly scalable, given the strength of broker relationships and market leading credit decisioning, combined with the strength of the group's balance sheet. Potential opportunities for synergies with the group's existing businesses, including enhancements to underwriting and collections capabilities, the development of a business-to-consumer proposition and leveraging the Vanquis Bank customer base, will be evaluated post-acquisition.
The consideration for the acquisition will be satisfied by the payment of £120 million in cash on completion to the Moneybarn shareholders, funded through the proceeds of a placing of new ordinary shares in Provident Financial with institutional investors.
The acquisition will be immediately accretive1 to underlying earnings2, assuming refinancing of Moneybarn's debt only, with pro-forma profit before tax, interest and amortisation of £20.8 million for the period ended 30 June 20143. Moneybarn is a high return on capital business and, as such, there will be no change to the group's financial model or dividend policy.
As at June 2014, the net receivables of Moneybarn were £133.1 million4 and borrowings were £144.8 million. Following the acquisition, the group's gearing will remain below 3.0 times, comfortably lower than management's stated maximum target level of 3.5 times. The existing Moneybarn borrowings will be refinanced shortly after the acquisition, utilising the group's existing committed facility headroom at a substantially lower cost of funds.
For the year ended 31 December 2013, Moneybarn reported audited profit before tax of £5.5 million, gross assets of £151.6 million and net receivables of £128.5 million under UK GAAP.
Moneybarn has a well regarded management team, led by Peter Minter, with significant experience and expertise. Following completion of the acquisition, the existing management team will be retained and will report directly to Peter Crook, group Chief Executive.
The group intends to put in place appropriate retention and incentivisation arrangements to ensure a smooth transition, including a share incentive plan that will incorporate a performance element and, if achieved, will be satisfied by the issue of Provident Financial shares. The group plans to retain both the existing independent brand and the location of Moneybarn's business post the acquisition.
Commenting on the acquisition, Peter Crook, Chief Executive of Provident Financial, said:
"I am delighted that Provident Financial is able to announce the acquisition of Moneybarn, which is the market leader in the non-standard car finance market. The acquisition provides an exciting opportunity to create a third leg of earnings that complements the organic growth opportunities available to the group. I look forward to working with Peter Minter and his team to realise the significant growth opportunity in this market."
David Stevenson, Provident Financial 01274 351351
Simone Selzer, Brunswick 020 7404 5959
Gary Thompson, Provident Financial
email@example.com 01274 351351
A management presentation is available below.
This statement is not intended as a profit forecast or profit estimate and relates to future actions and circumstances which, by their nature, involve risks, uncertainties and other factors. This statement should not be interpreted to mean that the future earnings per share of the group for current or future financial years will necessarily match or exceed historical or published earnings per share of Provident Financial plc
Excludes acquisition costs and amortisation of goodwill or intangible assets arising as a result of the acquisition
Unaudited pro-forma income statement (pre interest and tax and any goodwill/intangible amortisation arising from the transaction) adjusted to IFRS for the 12 months ended 30 June 2014
Unaudited pro-forma receivables adjusted to IFRS as at 30 June 2014