Provident Financial acquires sub-prime lender Moneybarn

Founded in 1992, Moneybarn provides car finance to sub-prime customers in the UK, operating mainly through brokers with additional distribution sourced through independent car dealers and from its website directly to customers.

It offers secured car loans, predominantly through conditional sale agreements, and with the car typically used for necessities such as travelling to work rather than for luxury or discretionary purposes.

The acquisition of Moneybarn aims to broaden Provident Financial’s product offering to the group’s target customer base and create a third leg of earnings that complements organic growth.

Moneybarn’s new business originations have been muted recently, given funding constraints, and the acquisition allows scope for growth. Duncton believes that the business is highly scalable, given the strength of broker relationships and market leading credit decisioning, combined with the strength of the group’s balance sheet.

Potential opportunities for synergies with the group’s existing businesses, including enhancements to underwriting and collections capabilities, the development of a business-to-consumer proposition and leveraging the Vanquis Bank customer base, are due to be evaluated post-acquisition.

As at June 2014, the net receivables of Moneybarn were £133.1 million and borrowings were £144.8 million. Following the acquisition, the group’s gearing will remain below 3.0 times, comfortably lower than management’s stated maximum target level of 3.5 times. The existing Moneybarn borrowings will be refinanced shortly after the acquisition, utilising the group’s existing committed facility headroom at a substantially lower cost of funds. For the year ended 31 December 2013, Moneybarn reported audited profit before tax of £5.5 million, gross assets of £151.6 million and net receivables of £128.5 million under UK GAAP.

Management

Moneybarn has a well-regarded management team, led by Peter Minter, with significant experience and expertise. Following completion of the acquisition, the existing management team will be retained and will report directly to Peter Crook, group chief executive.

The group intends to put in place appropriate retention and incentivization arrangements to ensure a smooth transition, including a share incentive plan that will incorporate a performance element and, if achieved, will be satisfied by the issue of Provident Financial shares. The group plans to retain both the existing independent brand and the location of Moneybarn’s business post the acquisition.

Commenting on the acquisition Crook said: “I am delighted that Provident Financial is able to announce the acquisition of Moneybarn, which is the market leader in the non-standard car finance market. The acquisition provides an exciting opportunity to create a third leg of earnings that complements the organic growth opportunities available to the group. I look forward to working with Peter Minter and his team to realise the significant growth opportunity in this market.”