MoneyMe: Acquisition set to add scale

About the author:

Author name:

By Steven Sassine

Job title:

Associate Analyst

Date posted:

21 December 2021, 9:00 AM

Sectors Covered:

Diversified Financials

• MoneyMe (ASX:MME) announced the acquisition of SocietyOne via a Merger Implementation Agreement. The total consideration is ~A$132m (based on a A$1.76 share price, a scrip consideration of 70m-75m MME shares and between A$0-A$9.7m cash).
• The acquisition seems a good strategic fit, in our view, with MME adding significant scale to its already rapidly growing business. From FY24, A$17m in pre-tax cost synergies and greater than A$15m in revenue synergies are expected. We have the transaction as cash EPS accretive post synergies and integration costs from FY24 (~6% - ex Revenue synergies).

MME acquires SocietyOne

MME announced the acquisition of SocietyOne for a scrip consideration of between 70m-75m MME shares and between 0-A$9.7m cash under a Merger Implementation Agreement. The total consideration equates to ~A$132m (based on a $1.76 share price for MME and assuming 100% scrip). The deal is scheduled for completion in March-22.

In our view, the deal makes strategic sense, in respect of:

1. MME being able to add scale to its already fast growing loan book and
2. MME being able to leverage SocietyOne’s differentiated client-base, distribution network and customer acquisition channels.

The details

On the aforementioned scale benefits, the transaction will see MME’s combined gross loan book grow ~70% on a pro forma basis to ~A$930m from A$542m as at Nov-21 (assumption being the ~40% of off balance sheet loans are brought on balance sheet. The transition to 100% on balance sheet is expected to complete by FY24).

On synergies, management have flagged A$17m per year in pre-tax cost synergies (from FY24) gained from the rationalisation of duplicate functions, systems and premises, with the potential for future funding cost benefits (via accelerated securitisation).

Greater than A$15m in Pre-tax revenue synergies are also expected to be achieved from FY24 through the marketing/cross selling of MME’s broad product suite to SocietyOne’s differentiated customer base (i.e. prime customers with an average Equifax score of 721 and an average age of 45 vs MME’s average Equifax score of 656 and average age of 34).

Other strategic benefits of the transaction, in our view, include:

1. The potential to utilise SocietyOne’s ‘banking as a service’ agreement with Westpac to offer banking products to MME customers (e.g. transaction accounts);
2. The ability to leverage differing customer acquisition channels via SocietyOne’s shareholder base / media partnerships (e.g. Seven West Media, News Corp and Consolidated Press Holdings);
3. By moving SocietyOne onto MME’s Horizon technology platform, we expect operating leverage benefits and possibly enhanced customer outcomes via quicker approval times (e.g. 1-2 days vs MME at 1-2 hours) and;
4. Further distribution opportunities via an expanded broker network (21% of 1Q22 originations were via brokers) as well as SocietyOne’s ‘Credit Score’ customer base (currently ~147k customers which are driving ~27% of SocietyOne origination volumes).

We estimate acquisition accretion from FY24 (assumptions and analysis overleaf).

Forecast and valuation update

We incorporate the acquisition into our MME forecasts, which sees our FY23/FY24 NPAT rise ~16%/40%. Our DCF-derived price target rises to (login to view) on our earnings changes.

Investment view

In our view, the acquisition of SocietyOne gives MME the ability to scale quickly in a competitive, somewhat fragmented consumer credit sector.

Whilst not without integration risk, the deal should allow MME to continue to deliver strong book growth as it penetrates this additional customer base and utilises new distribution/marketing channels. Add maintained.

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