Humm (ASX:HUM) share price shoots higher on $335m Latitude BNPL deal

Latitude is buying Humm's BNPL business…

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Key points

  • Humm and Latitude have signed a deal for the former's BNPL business
  • Latitude will be paying a total of $335 million in cash and shares
  • The deal is expected to be double-digit earnings per share accretive for Latitude

The Humm Group Ltd (ASX: HUM) share price is shooting higher today.

In morning trade, the financial services company's shares are up 7.5% to 92.5 cents.

Why is the Humm share price shooting higher?

The catalyst for the rise in the Humm share price on Friday is news that a deal has finally been struck between it and Latitude Group Holdings Ltd (ASX: LFS) for its buy now pay later (BNPL), instalment, and credit card operations.

According to the release, the two parties have executed a binding agreement that will see Latitude take control of these consumer businesses for a total consideration of $335 million. This represents cash of $35 million and 150 million Latitude shares.

There were concerns that recent weakness in BNPL shares could scupper the deal or lead to the consideration being reduced, but that has proven not to be the case. These terms are the same as those announced on 4 January when Latitude first tabled its offer.

Why acquire these operations?

Latitude believes it will generate $55 million of annual synergies from duplicate costs, technology rationalisation, and funding benefits by the end of 2023 following full integration.

In addition, the release notes that Humm Consumer is expected to generate $35 million of pre-tax cash earnings for the full year 2023. As a result, the combination is expected to deliver incremental pre-tax cash earnings of $90 million on a run-rate basis by the end of FY 2023, excluding $10 million of revenue synergies.

Ultimately, the transaction is expected to deliver double digit cash earnings per share accretion assuming full run rate synergies. This is despite the issue of 150 million new shares to Humm shareholders.

Management commentary

Latitude's Managing Director and CEO Ahmed Fahour said: "The acquisition of Humm's consumer business is a great outcome for both Latitude and Humm shareholders. The Transaction will deliver significant synergies and shareholder value, cementing our position as the leading instalments and consumer lending business in Australia and New Zealand and accelerate our international expansion."

"Humm's consumer business is a great fit for Latitude given Humm's capability in big and small ticket BNPL and its merchant base, providing additional scale to Latitude at minimal marginal cost."

Mr Fahour also revealed that Latitude is inviting Humm's CEO to lead the BNPL business.

He said: "Upon completion, it is proposed that Humm Group CEO Rebecca James will be invited by Latitude to lead the combined group's BNPL business. Latitude also intends to invite two Humm independent directors to join the Latitude Board."

The Humm share price is down 27% over the last 12 months.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Humm Group Limited. 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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