The specialist lender is to acquire 100 per cent of the equity of Portuguese consumer finance bank, Banco Primus, from Crédit Foncier de France for €65 million (A$95 million).
The transaction, which is subject to a standard change of control approval from the Bank of Portugal and the European Central Bank, is expected to complete during the first quarter of 2018.
Pepper Group has said the transaction will be funded by a mixture of senior debt and equity, and revealed that it has already negotiated around €500 million (A$720 million) in securitised funding commitments to repay the debt provided by CFF, as well as to fund future originations.
The acquisition will see Pepper take voting interests in the bank, which specialises in used car financing and personal loans.
Banco Primus has $677.7 million in assets and holds offices in Portugal, Spain and an office in Hungary, which has a small portfolio that will be “run off” in the next 12 months.
According to Pepper, the bank is the fifth largest auto finance provider in Portugal – adding that the country’s auto loan market has experienced compound annual growth of 25 per cent since 2012 and is expected to remain “strongly positive in the near term”.
Pepper looks to take deposits in Spain and Portugal
The lender said that Primus offers Pepper “the opportunity to acquire a well-managed consumer credit platform in a familiar asset class” and provides the group with the ability to take deposits in Portugal and Spain (subject to further regulatory approvals).
Mike Culhane, the group chief executive officer of Pepper Group, commented: “This transaction represents the next step in Pepper’s long-term growth strategy that sees us expand into market segments and countries where we see the opportunity for significant risk adjusted returns due to favourable local market dynamics.
“The acquisition of Banco Primus extends Pepper’s consumer finance presence in Europe. Over time, we plan to grow our Banco Primus and Pepper Spain businesses by expanding the Portuguese and Spanish licenses to allow us to take deposits.”
He added that deposits provide “flexibility” for more innovation in products design, “resulting in more growth.”
Mr Culhane said that the Banco Primus team, led by Hugo Carvalho da Silva had managed the run-off non-core portfolios “exceptionally well” while “building out one of the most well-respected car financing businesses in Portugal”.
Mr da Silva is expected to become a member of Pepper’s global executive committee once the acquisition is closed.
“The combination of lending and asset servicing skills within the team are a perfect fit for Pepper’s core business lines,” Mr Culhane added.
The group added that “the opportunity also exists for Pepper Spain and Primus to work together on a number of cross-selling and new product opportunities.
It is expected that “synergy benefits” of around $1.5 million per annum will be realised across Pepper’s and Primus’s European operations as a result of the transaction.
The move is the latest step Pepper has taken to expand its European footprint. Earlier this year, Pepper abandoned plans to form a joint venture with Spanish banking giant Banco Popular, following on from controversy at the Spanish bank.
Khang & Khang LLP is reportedly investigating claims against Banco Popular Español, S.A. concerning possible violations of federal securities laws.
Pepper said in April that it was "in the best interests of both parties not to proceed with the joint venture due to a change in strategic priorities", adding that it “remains enthusiastic about the many lending and servicing opportunities for future growth throughout Europe”.
[Related: Specialist lender JV project collapses]