Kvika banki hf. (“Kvika”) has agreed heads of terms with the shareholders and the management team of Ortus Secured Finance Ltd. (“Ortus”) to acquire a majority shareholding in Ortus.
Ortus is a British alternative credit provider specialising in property backed lending to borrowers in the United Kingdom. The company was founded in 2013 and currently manages a 23 billion ISK equivalent private credit portfolio, of which 14.5 billion ISK is held on Ortus’ own balance sheet. If the transaction proceeds, Kvika group’s total consolidated assets are expected to grow by 10%.
Ortus’ headquarters are in London and the company also operates offices in Belfast, N-Ireland and in Glasgow, Scotland. Since its launch in 2013, Ortus has advanced over 70 billion ISK equivalent to borrowers whilst experiencing no losses of capital.
Kvika, through its subsidiary Kvika Securities Ltd. (“KSL”), currently owns 15% of Ortus’ ordinary shares , which it acquired in 2018. Since that time, Kvika has worked with the company’s management and shareholders to support its growth journey. During this period, Ortus has expanded its operations and lending volumes considerably, and is expected to deliver profit after tax of roughly 600 million ISK equivalent in 2021, an increase of over 20% on the prior year. Ortus’ book value of equity is projected to be close to 4 billion ISK equivalent by year-end 2021.
Following the acquisition, funding synergies are expected to substantially lower Ortus’ cost of funding, allowing the company to offer its customers new property backed credit products at more competitive rates, as well as further bolstering profitability.
Once the acquisition has been completed, Kvika will own close to 80% of the equity in Ortus. Stoðir hf. is currently Ortus’ largest shareholder with a 30% stake in Ortus’ ordinary shares. As part of the transaction, Kvika will acquire the entire equity stake of Stoðir and the entire equity stakes of other minority shareholders, as well as part of the management team‘s equity stake. As Stoðir is a shareholder in Kvika, a fairness opinion will be sought from an independent third party professional.
Richard Beenstock, CEO of Ortus, and Jon Salisbury, Managing Director of Ortus, both of whom are existing shareholders, will continue to hold a significant shareholding in Ortus following the acquisition and will continue to manage the daily operations alongside the company´s experienced team of professionals in the coming years. Örvar Kærnested, who is also an existing shareholder and has served as Chairman of the Board of Ortus in recent years, will also continue to hold an interest in the Company and continue to serve on its Board. As part of the arrangement, Kvika will acquire the remaining approx. 20% equity in Ortus over the next four years at a valuation determined by the company’s results over the period.
The Heads of Terms, signed by the parties, assign a valuation of ISK 4.2 billion equivalent to Ortus’ ordinary share capital, of which Kvika Securities owns just over ISK 600 million. Additionally it is expected that Kvika will purchase all issued preferred shares in Ortus. Assigned valuation of which is just under ISK 2 billion, of which Kvika owns just under 600 million. The consideration will be paid in cash, with no issuance of new shares required owing to the bank’s strong capital position.
Due diligence and documentation will be undertaken in the coming weeks. The transaction is expected to be completed in the next few months. The acquisition is subject to regulatory and board approval following due diligence and documentation. Further information regarding the impact on Kvika‘s operations and balance sheet will be published at the latest at the finalization of the transaction.
Marinó Örn Tryggvason, CEO of Kvika banki hf.:
“Kvika acquired a minority share in Ortus in 2018, and has had a successful collaboration with the company and its management team ever since. The acquisition is a logical next step for Kvika’s growth strategy in the UK. Ortus has expanded considerably in recent years, and we are confident that further significant opportunities for growth lie ahead in the near future.
In recent years, Kvika has taken advantage of its strong financial position to increase the profitability of several specialised lenders through acquisitions or mergers, including Lykill, Netgiro, Aur and Framtidin. The acquisition of Ortus is an extension of this strategy. Ortus’ loan book has delivered exceptionally strong risk adjusted returns, which are expected to further improve with a lower cost of funding following the transaction. Furthermore, the acquisition will further enhance the geographic diversification of Kvika’s loan exposure, as well as to contribute positively to the share of property-backed lending across its loan portfolio.”