Business as usual pledge following AFG/Connective merger

by Melanie Mingas13 Aug 2019

Connective director Mark Haron has addressed brokers’ concerns following yesterday’s news that the aggregator is to merge with AFG in a deal valued at $120m.

Speaking to Australian Broker, Haron clarified that, should the merger be approved next year, it will be business as usual for the combined broker network, which will count almost 7,000 loan writers across the country.

“What this means for brokers is that nothing changes from a Connective point of view. Glenn and I will still be there, still driving the business and driving the team to provide excellent support,” Haron said.

Many brokers were shocked by the Monday morning announcement, which was confirmed by the ASX just ahead of official communications being sent to brokers.

“While some people are surprised by the news, it‘s one of those situations where you are dealing with a listed entity, it’s market sensitive information and you can’t be front running in telling people that a certain transaction is occurring.

“That’s simply against the law,” Haron added.  

Looking ahead, there will be minimal disruption to how each aggregator’s broker network operates and the two business will remain completely separate from each other.

This includes the lending panel, business models and pricing. Regarding headcount, there will be “no cross pollination or changes to roles” at Connective while, AFG “reshaped” its executive team back in June.

Software systems will also remain separate with Haron revealing that a “better version” of Mercury will be rolled out “very soon” for Connective brokers.

It will include new features such as Cashdeck, to help brokers manage living expense calculations more effectively.

However, the deal is likely to mean an expansion in Connective’s white label portfolio, supported by AFG’s securitization program. Currently white label loans contribute 4% of Connective’s total business.

While some mergers are a result of financial difficulties at one or more of the concerned firms, in an FAQ to brokers Connective denied this was a factor, highlighting that 2018 was the firm’s most profitable to date.

“During the ASIC remuneration review, subsequently the royal commission and the election, AFG and Connective’s senior management spent a fair bit of time coming together and looking at how we can support brokers and support the industry and we found that there was a fair bit of alignment in terms of our thoughts. That led to further discussions and then we started to go through the full investor process,” he said.

Under the transaction, Connective Group Pty Ltd will receive $60m in cash and 30,886,441 AFG shares valuing the acquisition at $120 million. AFG will primarily fund the cash component through a new corporate debt facility.

The transaction is expected to be EPS accretive (presynergies) in the first full financial year post integration and AFG is currently expected to maintain a dividend payout ratio of between 60 and 80%.

The deal has still to be approved by both Connective and AFG shareholders, as well as the ACCC however, if successful, the combined group will create a significant national mortgage distribution network, with more than 6,575 brokers and combined mortgage settlements of $76 billion in FY19.

A webinar is scheduled for Thursday 15 August, during which Connective brokers will be able to find out more about the deal.