Challenger bank Aldermore in is discussions with South African financial services firm FirstRand over a possible takeover.
Shares in Aldermore jumped by nearly 20 per cent on Friday afternoon (13 October) as news of the potential deal, which would value the lender at more than £1bn, emerged.
Amid the movement of its share price, Aldermore has confirmed that it received an “indicative proposal” as is in “preliminary discussions” with FirstRand over the details of this offer.
In a statement the board of Aldermore said it is “likely to recommend a firm offer at this level”.
The company added: “There can be no certainty that any firm offer will be made or as to the terms on which any offer might be made.”
The offer of 313p a share represented an 18 per cent premium on the price of Aldermore’s shares at close on Thursday (12 October), before it started rising the next day.
It still represents a small premium based on the cost of Aldermore’s shares this morning (16 October) – currently at 303p.
Aldermore was founded in 2009 and floated in 2015 at a price of 192p a share.
In a statement FirstRand said: “FirstRand has been assessing opportunities to build a sustainable long-term deposit franchise to fund its strategy to grow and diversify the revenues of its current UK business.
“The possible acquisition of Aldermore, with its unique operating model, market positioning and strength in deposit taking, would provide the ideal platform for FirstRand to fulfil this strategy on an accelerated basis.”
Aldermore’s profits before tax increased last year as the bank provided more than £2bn in new mortgage lending.
The bank said it was a record year for profits and growth in both lending and deposits.
Underlying profit before tax increased by 34 per cent compared to 2015, to a record high of £133m.
Caroline Belcher, co-head of financial services at Cavendish Corporate Finance, said: “FirstRand’s prospective takeover of Aldermore addresses some of the potential commercial issues both banks face.
“FirstRand has been seeking to return to developed markets, a strategy switch prompted by slowing growth and increasing risks in Africa, which was previously the focus of its expansion plans.
“Aldermore, while reporting strong first half results and one of the better performing UK challenger banks also faces sector wide concerns over sluggish UK economic growth, margin squeezes, potential rate rises hitting the mortgage market and fears over capital consumption.
“Partly due to these rising issues, going forward we see FirstRand’s offer for Aldermore as likely to be the first of a rash of M&A deals in the challenger bank sector as it is ripe for consolidation and particularly attractive for overseas buyers who would benefit from the fall in the value of the pound.”