HUB24 (ASX:HUB) share price rises amid acquisition announcement

HUB24 is looking to expand its hold with an acquisition…

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The HUB24 Ltd (ASX: HUB) share price bounded out of the gate on Monday morning after the company provided a key update. HUB24 shares opened 4.05% higher and kept climbing to just over 5% above Friday’s closing price before partially retreating.

Shares in the investment platform provider are rising amid its proposal to acquire self-managed super fund (SMSF) administration software provider, Class Ltd (ASX: CL1). At the time of writing, the HUB24 share price is trading 1.36% higher at $33.51.

Meanwhile, Class shares have exploded nearly 60% since the market opened.

Why is the HUB24 share price rising?

Shareholders of both HUB24 and Class will be following the market closely this morning. This follows HUB24 announcing it has entered a binding scheme implementation deed to acquire 100% of shares in Class through a scheme of arrangement.

According to the release, the companies have agreed upon a deal that entails the issue of 1 HUB24 ordinary share for 11 Class ordinary shares. In addition, HUB24 will provide 10 cents per Class ordinary share in cash to the company’s shareholders. In total, this represents a 71.6% premium to the SMSF software company’s previous closing share price.

The rationale behind the acquisition is to combine two complementary businesses, both strategically focused on delivering financial solutions. Furthermore, management foresees growth opportunities from increases in efficiency and product capability to new and existing customers. The potential for further growth is likely attracting attention to the HUB24 share price today.

Following the acquisition, Class will add over 7,700 unique customers to HUB24. These customers are spread across enterprises, administrators, accountants, auditors, advisers, and SMSF trustees. As a result, the combined company’s pro forma full-year revenue for FY21 would amount to $162.7 million.

It is expected the acquisition will provide 8% earnings per share (EPS) accretion in FY23. This excludes revenue synergies and one-off implementation costs. HUB24 noted anticipated cost synergies of circa $2 million per year. Meanwhile, FY22 is expected to involve $4 million to $5 million in transaction costs. Additionally, the company will likely shell out $6 million in implementation costs over FY22 and FY23.

Next steps

With the HUB24 share price in the news, a draft scheme booklet will be submitted to the Australian Securities and Investments Commission (ASIC) mid to late November 2021. From there, HUB24 expects to sit its first court hearing for the scheme in early to mid-December this year.

If everything goes to plan, the scheme will be implemented by mid to late February 2022.

Commenting on the acquisition proposal, HUB24 managing director Andrew Alcock stated:

We’re excited to be announcing the proposed acquisition of Class Limited with the full support of the boards of both companies. Class are market leaders in the establishment, management and administration of wealth and SMSF solutions. The completion of this transaction will combine two exceptionally talented teams with a common purpose to empower better financial futures for Australians and provide a unique range of products and services for financial professionals and their clients.

Finally, this news follows a recent flurry of positive updates from HUB24, sending its share price higher. Last week the investment platform company revealed record first-quarter funds under administration of $3 billion. Investors will be hoping this deal will build upon the company’s past success.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Hub24 Ltd. The Motley Fool Australia owns shares of and has recommended Class Limited. The Motley Fool Australia has recommended Hub24 Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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