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After exceeding prospectus forecasts in its first full-year result as a listed company, payments provider Cuscal (ASX: CCL) has announced the $75 million cash acquisition of Brisbane-based rival Indue.
Sydney-based Cuscal - formerly known as Credit Union Services Corporation until a 2006 name change - expects non-recurring integration costs of $25-30 million from the acquisition over two years, taking planned expenditure associated with the deal to just under a fifth of its total market capitalisation.
But the Cuscal board envisages "material cost synergies" from the purchase, along with improved capital generation, investment capacity and "sustainable, compelling capabilities for clients".
If the integration delivers on the Cuscal leadership's vision, $15-20 million in post-tax annual run rate cost synergies are anticipated by FY29. This is expected to drive earnings per share (eps) accretion of more than 25 per cent.
"We are pleased to announce the strategic acquisition of Indue. The acquisition represents an important evolutionary step for both businesses, bringing together two organisations with a shared heritage, similar values and a complementary client base," says Cuscal managing director Craig Kennedy.
"The acquisition is anticipated to drive material cost synergy opportunities and will result in a more resilient and sustainable payments business.
"We look forward to welcoming the Indue team and clients to Cuscal and believe that our experience in seamlessly integrating acquisitions and large-scale client migrations, along with the steps we have taken to ensure our success, including establishing an integration advisory committee, will help us effectively combine the two businesses. It will also help us better support clients and staff and realise value for shareholders."
Indue chief executive officer Derek Weatherley, who has been in the role since 2016 and has spent more than two decades of his career with the company having started as chief financial officer in 2003, describes the combination with Cuscal as a "win-win for our clients and our people".
"The acquisition brings enhanced scale, profitability and investment capability that will enable us to deliver material additional value for our clients by expanding the range of services we can offer," Weatherley says.
"We are excited to be joining forces with the Cuscal team, and personally, I look forward to bringing the businesses together through my involvement on the Integration Advisory Committee and broader role supporting the integration."
The announcement comes as Cuscal reveals a pro forma net profit after tax (NPAT) of $38.4 million for FY25, beating the prospectus forecast by 4.9 per cent for the business which listed on the ASX in November 2024.
Cuscal's statutory NPAT was down 9 per cent at $28.7 million, although this includes the impact of offer costs and other costs relating to the listing of $9.7 million after tax.
The group also saw transaction volume growth of 8 per cent.
"We are pleased to deliver a strong maiden full year result since listing, exceeding our prospectus profit forecast driven by growth in transaction-based revenue across all our core capabilities," adds Kennedy.
"Looking ahead, we remain focused on executing our strategy to deliver sustainable and profitable growth. While we expect continued regulatory change and macroeconomic uncertainty, we are confident that our diversified client base and efficient operating model will enable us to continue to deliver mid-to-high single digit transaction volume growth, translating to low double-digit underlying NPAT growth.
"We are excited about the potential for a combined Cuscal and Indue to make us more competitive, sustainable, and capable of greater scale to deliver value for our clients, people and shareholders."
The acquisition is still subject to regulatory approvals from the Australian Competition and Consumer Commission (ACCC) and the Australian Prudential Regulation Authority (APRA), and is anticipated for completion by the end of this calendar year.
The $75 million transaction compares to $16.99 million worth of shares registered in Indue's last filings with the corporate regulator. Cuscal notes the acquisition price represents 1 1x price-to-book ratio and a 25.3x price-to-earnings ratio on a pre-run rate synergy basis.
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