Non Standard Finance (NSF) has made a surprise bid for the much larger Provident Financial Group (PFG).
The story so far:
- NSF made a bid on 22 February;
- it was rejected by PFG on 25 February;
- PFG and NSF have a large share of the doorstep lending market, so on 26 February the CMA issued an Initial Enforcement Order.
Every debt adviser will be familiar with “the Provvy” but it’s interesting to take a look at the two companies and consider what might happen to them if the bid succeeds.
The two companies cover most sorts of high cost, bad credit lending in the UK.
Loans at Home – doorstep lending
It is the third largest UK doorstep lender, after the much larger Provident and Morses. In mid-2018, Loans at Home had 98,500 active customers, up from 88,300 the previous year, probably picking up agents and customers from some of the fall-out from Provident’s botched reorganisation in the previous year (see below).
Loan durations are 1-5 years on amounts of £1-15,000. Most of its loans are transacted in branch, as compared with its competitors such as 118 Money and Likely Loans, which are all online.
George Banco & Trust Two – guarantor loans
NSF acquired the George Banco brand in 2017, making it the second largest UK guarantor lender after the much bigger Amigo. NSF views this as a high growth area, saying
While the overall level of demand for guarantor loans is growing strongly, we are continuing to take market share from competitors and are focused on consolidating our position as the clear number two in the UK.
Provident – doorstep lending
Provident started in business 135 years ago, growing to be the dominant doorstep lender in Britain. In early 2017, PFG was trading at over £30 a share after its 2016 results. Included in those was this statement:
[A] programme [has been] launched in home credit to migrate to a more efficient and effective field organisation structure during 2017 supported by the deployment of further technology.
After that things went badly wrong, with agents leaving, the technology working poorly, and loans being uncollected. In August 2017, after a couple of profits warnings, the share price was down to under £10, see Provident – home credit crisis.
Vanquis – credit card
Also in theAugust 2017 profits warning was the statement that the FCA was investigating Vanquis’s ROP product. That came as a surprise to shareholders who had not previously been told about this. In February 2018, the FCA ordered a large redress program. ROP formed a significant part of Vanquis’s revenue, which has now reduced.
In its trading update in January 2019 the following comment on Vanquis was widely viewed as the cause of the subsequent share price fall:
[There was] pressure on delinquency and arrears metrics in the second half of the year. This primarily reflects the continued increase in the use of payment arrangements, as first reported in October 2018, relating to enhanced forbearance procedures.
Satsuma – payday lending
Satsuma is a mid-sized payday lender. PFG has reported:
Satsuma continued to deliver strong growth with fourth quarter  new business and further lending volumes showing a year-on-year increase of approximately 38%.
Moneybarn – car finance
The FCA has been looking into Moneybarn since 2017, specifically loan affordability, forbearance offered to customers in difficulty and termination options. It is expected that it will be published in the next few months. In the meantime PFG has reported:
fourth quarter  new business volumes showed year-on-year growth of 21%. Customer numbers ended the year at 62,000, representing year-on-year growth of approximately 24%.
The bid from NSF
A “reverse takeover”
NSF is a lot smaller than Provident. Where a company is taken over by a smaller one, it is known as a reverse takeover.
NSF’s market capitalisation (the value of its shares times the share price) was c. £210 million just before the bid. Provident’s was c. £1.5 billion.
A “hostile takeover”
Often takeovers are agreed between two companies, but this is a hostile takeover. PFG not only didn’t accept the bid and recommend it to shareholders, but they had no idea it was coming. The Times has called it (behind paywall) “thrillingly hostile”, pointing out:
John van Kuffeler, NSF’s chief executive, [accused] the Provident board of near-incompetence, inexperience and lack of challenge. Provident riposted today by accusing NFS of being irresponsible, highly opportunistic and destabilising.
John van Kuffeler was PFG’s CEO chairman from 1991 until he reached retirement age in 2013 when he had to step down. Press comment suggests he thinks things have gone downhill since he left and that he is the man to turn them around.
The offer to PFG shareholders
It’s an all-paper or an all-share bid. Investors in a company being taken over prefer to get some or all cash for their shares, letting them exit or reduce their holding. But PFG shareholders are only being offered NSF shares.
There is no premium in the NSF offer. Investors normally expect to get paid more for their shares in a takeover than they were worth before the bid – otherwise why would they accept the offer? But NSF are offering 8.88 NSF shares in exchange for each PFG share, which was exactly the ratio implied by the two companies share prices the day before the bid.
With an all-paper, no premium bid, PFG shareholders won’t get any immediate gain from the takeover. But John van Kuffeler is promising a transformation plan, saying NSF can revitalise Provident’s management with a strengthened management team that will work more closely with regulators.
PFG’s major shareholders want this bid to succeed
Woodford, Invesco and Marathon, who together owned more than 52% of PFG, had given NSF irrevocable undertakings saying that they will accept the bid before it was announced, so they obviously believe in this transformation plan.
These institutional shareholders are also major shareholders in NSF, owning 65% of the company between them.
This puts the PFG board in a very difficult position. PFG in its bid rejection announced a delay of three weeks in publishing its 2018 results – this may suggest that it is hoping, Micawber-style, that something will turn up.
Are PFG hoping for a white knight?
A company that puts in a higher bid in a hostile takeover is known as a white knight where it rides to the rescue of the firm being taken over with a proposed takeover that is more palatable to the board. The Times article speculated about Amigo or New Day making possible bids. Or even a so-called Pacman defence where PFG would put in a counterbid for NSF.
NSF is proposing to sell its Loans at Home brand, which could appease the CMA as it represents the only market overlap between the two companies.
Its offer also suggests that it will sell PFG’s Moneybarn and possibly PFG’s Satsuma brand. So that will leave the new combined company with four brands:
- Vanquis credit card
- Provident doorstep lending
- Everyday Loans – branch-based large bad credit loans
- 2 guarantor loan brands.
Is it all about guarantor loans?
The Times article reported John Cronin, an analyst with Goodbody, as saying that:
NSF sees “a massive opportunity” in guarantor lending and plans to push guarantor loans to the Provident’s 1.7 million Vanquis Bank customers and seriously start to attack the dominance of Amigo.
Really? Guarantor loans are currently a very small part of a combined NSF/PFG group.
As they are telephone lending, requiring checks on two parties not just one, turning these loans into a mass market product are unlikely to be easy.
There must surely have been easier ways to raise capital to finance an expansion of the current small guarantor loan books than this merger where the new directors and management team will still have the same practical and regulatory problems that PFG has been wrestling with so unsuccessfully.
If you have been given loans or credit from PFG or NSF that was too expensive for you to repay, look at whether you can make an affordability complaint: