Latitude's $3.2B float died selling an Afterpay dream instead of the real lender

In October 2019, Latitude Financial Group shelved its $3.2 billion public listing for the second time in two years, abandoning the plan 'indefinitely' despite sufficient demand for the $1 billion of shares on offer — citing the importance of 'a strong after-market'.

The float was the mission of Latitude's private equity owners — KKR, Varde Partners and Deutsche Bank — after a 2018 attempt failed. CEO Ahmed Fahour launched LatitudePay, a buy now, pay later service, from a new Harvey Norman flagship, hoping some of the sector's 'gargantuan valuations' — Afterpay's $8 billion — would rub off. The prospectus promised Fahour $22.5 million in shares just for listing and staying three years, and $60 million in fees to 13 brokers, banks and advisers if the float succeeded.

Fund managers said the price was too high — 'at 11 times [earnings] there is not enough margin and buffer built into the valuation' — and that the sales job focused on BNPL ambitions rather than the core: point-of-sale finance and personal loans that made up 86 per cent of first-half 2019 earnings. 'At the end of the day, most of what they do is they are a boring old financier,' one said. Macro worries — sluggish credit growth, weak retail spending, bad-debt costs at cycle lows — did the rest.

'I'm convinced Ahmed was the problem,' one market veteran said of Fahour. 'It was a disastrous strategy, and he and Mike Tilley need to wear this.'

The BNPL halo story raised scrutiny of a business whose earnings were boring installment finance.

Pricing at 11 times earnings left no buffer against soft credit growth and retail spending.

The incentive structure — a CEO bonus and 13 adviser fee streams contingent on listing — rewarded getting the float done, not getting it priced right.

Repositioning for an IPO can talk investors out of the business they were pricing: dressing a profitable financier as an Afterpay rival invited questions it could not answer at 11 times earnings.

The float was shelved indefinitely with Fahour expected to bear the brunt of the owners' post-mortem. The source reports no immediate revival plan.