Interesting transaction. Mildly accretive for FSA as they are go from $9.2m pre-tax earnings in home loans only to a 76% share in the $12.5m earnings of the merged business, i.e. $9.5m FSA share. FSA stock trades at 4.5x pre-tax and they are paying equivalent 4.1x for the asset finance business, although it's equity in the subsidiary plus what are essentially options to earn-up the vendors to 32% if stretch targets are met, being to grow earnings 2.4x in 4 years...
A cool and slightly unusual transaction structure. It's got Tim's fingerprints all over it as he is all about deep skin in the game and stretch targets.
Other things of note: the FY22 forecast of $9.2m PBT for the home loans business is a slight step down from the $9.7m achieved in FY21, noting guidance wasn't actually provided with the full year results. But the full year results did state a plan to grow the home loans business 3-4x over the next 3-5 years. Secondly this acquisition is really a sequel to the Azora 5-year plan and JV with the same parties announced in Dec 2019 (attached for convenience). Back then the target was to get the loan pool to $1.5bn (new target $1.2bn) and $20m PBT by 2024 (new target $30m by 2026). And in typical Timmy style there was a 20% earn-in for the same management team, now it's a earn-up from 24% to 32%. Azora JV Dec 2019.pdf
Plaudits to Tim and the FSA board for keeping things interesting!
FSA Price at posting:
$1.08 Sentiment: None Disclosure: Not Held
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