Australia’s largest equipment finance broking company and a debtor finance specialist have announced that they intend to merge, a move that will form an SME and equipment finance giant.
Consolidated Operations Group (COG) – Australia’s largest equipment finance broking company – currently comprises eight group entities, including Consolidated Finance Group, Platform Consolidated Group, Consolidated Platform Aggregation, and Centrepoint Finance, among others.
It currently covers around 17 per cent market share of the intermediated asset finance market, with 117 owned brokers and 4,988 aggregation brokers.
It has now been revealed that the ASX-listed diversified financials group will acquire all of the issued share capital of non-bank lender CML Group – the parent company of Cashflow Finance – in a merger which values the equity of CML at approximately $111.4 million.
The merger is subject to court and CML shareholder approval and aims to form a “leading financial services group focusing on servicing SME businesses in Australia”, with expected revenue of approximately $265 million.
The CML board has already unanimously recommended that shareholders vote in favour of the scheme (in the absence of a superior proposal and subject to an “independent expert” agreeing that the scheme is in the best interests of CML shareholders).
The groups said that there would be “significant revenue synergies” achieved through cross-selling CML’s “established SME finance products through COG’s extensive finance broking network”.
“Combining these two companies provides a material cross-selling opportunity, in particular an ability to offer COG’s SMEs with an invoice financing product and the ability to better leverage debt inside its equipment financing business,” the prospectus says.
Other benefits of the merger include reduced corporate overheads and lower ASX and compliance costs.
CML shareholders will have the option to elect to receive 100 per cent of the scheme consideration in COG shares or receive a mixture of cash and COG shares.
The merger will see CML list on the Australian Securities Exchange (ASX) initially under COG. However, it is expected that a new name for the merged group will be agreed upon between the parties once the courts have approved the scheme of arrangement.
Both groups have also announced the launch of simultaneous equity raisings via pro rata non-renounceable entitlement offers of approximately $20.2 million for COG and $14.5m for CML.
If approved, it is expected that the merger will take effect from February 2020 and would see COG CEO Andrew Bennett assume the role of CEO of the merged group, while CML CEO Daniel Riley would become executive director. The board of directors would consist of multiple existing directors from both COG and CML.
'Compelling benefits for both sets of shareholders'
Commenting on the merger, Andrew Bennett, CEO of COG, said: “The merger with CML accelerates the execution of COG’s strategic plan of delivering product to COG’s distribution network. The combined entities increased market capitalisation and liquidity should provide additional value to shareholders.
“We see this transaction as a partnership, with compelling benefits for both sets of shareholders.”
CML managing director Daniel Riley added that the board thinks the scheme “reflect[s] a compelling value proposition for CML shareholders, who will benefit from growth in lending volumes through leverage of COG’s substantial existing distribution network of asset lending brokers”.
“We see this partnership as providing the opportunity to gain market share in secured business lending at a faster rate than could be achieved independently, driving earnings growth in the merged entity to maximise shareholder value," he said.
“The transaction will provide CML shareholders with a material interest in a substantially larger and diversified business.”
The announcement comes just days after CML Group revealed that it had completed its purchase of Classic Funding Group (CFG). The COG/CML merger therefore includes the CFG business.
Annie Kane is the editor of The Adviser and Mortgage Business, Australia’s leading source of news, opinion and strategy for mortgage brokers and third-party mortgage distribution.
Before joining Momentum Media in 2016, Annie wrote for a range of business and consumer titles, including The Guardian (Australia), BBC Music Magazine, Elle (Australia), BBC Countryfile, BBC Homes & Antiques, and Resource magazine.