Salter Brothers fund makes a $74m takeover play for non-bank lender Prospa

A consortium led by Melbourne-based alternative investment firm Salter Brothers is poised to acquire Prospa Group (ASX: PGL) in a deal that values the non-bank lender at $73.8 million.

The acquisition will also bring buy-now-pay-later outfit Zip Co’s (ASX: ZIP) business loan book into the Salter Brothers fold after Prospa announced last month that it was acquiring the $18.4 million loan book for $15.6 million.

In tandem with its half-year profit result, which saw an $11.5 million turnaround in the company’s fortunes over the past year, Prospa announced today that it has entered a scheme of arrangement for Salter Brothers Tech Fund to acquire all of its shares on issue for 45c per share.

Under the scheme, Prospa shareholders can take the cash offer or roll over their shares to PGL HoldCo Limited, a new unlisted public company that will operate the Prospa business.

The cash consideration represents a 20 per cent premium to yesterday’s closing share price for Prospa, a company founded in 2012 by Greg Moshal and Beau Bertoli before listing on the ASX in 2019.

The company’s independent board committee (IBC) says it unanimously backs the offer in the absence of a better deal with Prospa chair Gail Pemberton saying the committee believes it is in the ‘best interests of Prospa shareholders’.

“Subject to no superior proposal emerging and the independent expert concluding, and continuing to conclude, that the transaction is in the best interests of Prospa shareholders, the IBC recommends that they vote in favour of the scheme,” she says.

“The transaction represents a premium of 26 per cent to Prospa’s VWAP (volume-weighted average price) since our last earnings update.

“For those shareholders seeking liquidity, the IBC notes that the cash consideration payable under the scheme delivers certainty of value to Prospa shareholders in what has been an otherwise illiquid market for Prospa shares.”

Shares in Prospa, Australia's largest online lender to small business, hit a high of 43c in early trading on the ASX, still short of the offer price.

The takeover, which remains subject to regulatory hurdles and shareholder approval, is being partially funded by a $12 million loan forwarded by Prospa’s lender iPartners.

Prospa has sought approval to amend the iPartners facility agreement to allow Prospa to on-lend up to $12 million to the consortium to fund part of the cash consideration. This agreement is also subject to approval by Prospa shareholders.

The Salter consortium expects to fund the remainder of the cash component of the deal via its own equity.

The Salter Brothers Tech Fund is among a number of investment vehicles managed by Salter Brothers. The wholesale fund was launched in October last year with a target fund size of $50 million. 

Salter Brothers, which was founded in 2014 by brothers Paul and Rob Salter, oversees investments in property, equities, technology and emerging companies among other alternative assets.

The takeover announcement follows a strong rebound in Prospa’s fortunes in the first half of FY24, with the company posting a net profit of $5.98 million – up from a $5.5 million loss a year earlier.

The $11.5 million turnaround was driven by a sharp fall in expenses, including a $20.3 million decrease in loan impairments.

However, a deliberate tightening of credit setting by the company led to a 27.4 per cent fall in loan originations to $308.3 million during the period.

“Prospa has continued to uplift its credit risk management to help navigate a challenging economic environment,” says Moshal, the Prospa CEO.

“We are also delivering on our product and technology roadmap, with all new customers now originating on our new platform. 

“We’re pleased to acquire Zip Business’s Australian performing loan book, which enables us to execute on opportunities that further unleash the potential of small business.”

Prospa posted revenue before transaction costs of $145.4 million in the latest half-year, down 7.4 per cent from a year earlier.

The company says while its key markets of Australia and New Zealand are facing an uncertain economic outlook, the company’s early loss indicators are down from their peak in mid-2022.

“Prospa continues to monitor our customer base for risks and opportunities, as demonstrated by purchasing the Zip business loans,” the company says.

Zip's business loans comprised about $18.4 million of commercial loans to 370 small businesses. Zip's December-quarter results revealed that the business loan subsidiary contributed about $2 million in revenue for the quarter.

Meanwhile, the proposed takeover of Prospa by Salter Brothers still has some way to go before being finalised. Pending regulatory and shareholder approvals, the company expects the deal to be completed in August this year.