AFG set to buy rival for $120m

Australian Finance Group has signed a binding agreement to acquire Melbourne-based Connective Group in a cash-and-scrip deal worth around $120 million that will create an entity with over 6,575 brokers.

Under the transaction, privately owned Connective Group will receive $60 million in cash and around 30.9 million of AFG shares issued at $1.94 each.

The AFG shares issued to Connective Group will be escrowed for two years.

The scrip component of the deal equates to 6.95 per cent of AFG’s total shares.

Azure Capital was financial adviser to AFG, while Herbert Smith Freehills was legal adviser.

The deal is subject to shareholder approval from Connective and AFG (only if required), as well as approval from the Australian Competition and Consumer Commission.

The transaction also remains conditional upon a court validating the transaction.

Connective has a broker network of around 3,600, and AFG said the combined entity would have national settlements of $76 billion in the 2019 fiscal year.

For the 2019 financial year, Connective generated profit of $10.9 million from revenue of $63 million.

AFG chief executive David Bailey said the acquisition of Connective offered the opportunity to grow scale in both asset finance and commercial lending.

“Connective brings a contrasting revenue model based on fixed membership fees and offers services across residential, commercial and asset finance, as well as its own range of white label home loan products under the Connective Home Loans brand,” he said.

“With extensive experience in the mortgage broking industry and proven management expertise, respected senior executives Glenn Lees and Mark Haron will continue to run Connective’s business and will retain a significant shareholding in the merged group.”

Connective chief executive Glenn Lees will be offered to join the AFG board on completion of the takeover.

Mr Lees said the coming together of the Connective and AFG teams was a natural fit.

“I am incredibly proud of the business and, alongside the team, I look forward to continuing to drive the success of our brokers who positively impact the lives of thousands of Australian homebuyers every year,” he said.

Shares in AFG jumped 8.37 per cent to trade at $2.20 at 11.40am AEST.