Picture: ISTOCK
Picture: ISTOCK

FirstRand is considering a R19.4bn acquisition of London-listed lender Aldermore in a deal that would accelerate the banking group’s UK expansion and put surplus capital to work.

News of the potential transaction broke on Friday after a double-digit surge in the share price of Aldermore forced it to come clean about FirstRand’s approach.

Aldermore, with its “unique operating model, market positioning and strength in deposit-taking would provide the ideal platform” for FirstRand to fulfil its expansion strategy on an “accelerated basis”, FirstRand said on Friday. It was still undertaking a due diligence. “There can be no certainty that any firm offer will be made,” it said.

Aldermore ended the week 18.6% higher at 303.5p — just shy of its record of 316p, and not far off FirstRand’s possible offer level of 313p per share, which would give the deal a value of about £1.1bn. FirstRand’s share price closed 1.89% weaker on Friday at R53.35.

FirstRand would, if the deal materialises, join a growing list of South African companies that have deployed capital in foreign markets as economic growth stagnates at home.

Further, financial services companies including FirstRand, Discovery and Rand Merchant Investment Holdings, have outgrown SA and would be blocked from doing large deals here by competition authorities.

FirstRand’s rationale behind the Aldermore deal is to clinch a deposit franchise in the UK to fund its expansion in that market more sustainably. It already owns vehicle and asset finance business MotoNovo.

Aldermore, established in 2009, is primarily a digital bank with no branch network.

At the end of June, it had a loan book of £8.1bn. This compares with FNB SA’s loan book of more than R500bn.

Aldermore’s customer deposits grew 10% in the six-month period to £7.3bn, while pretax profit increased 32%, to £78m.

Liam Hechter, an analyst at Anchor Capital, said on Friday an acquisition was likely to be earnings accretive in the short term. But there was more work to be done on the part of FirstRand to determine whether it was a long-term strategic fit.

Mike van Dulken, head of research at Accendo Markets, said that challenger banks, such as Aldermore, Virgin Money and Metro Bank, had struggled to compete with the likes of Barclays and HSBC. “The regulatory set-up becomes a hurdle for smaller players,” he said.

ziadyh@businesslive.co.za

 

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