Ultimate Finance Group

As foreshadowed here, trade finance specialist Ultimate Finance has agreed to buy complementary concern Ashley Commercial Finance in a £4.75m to £7.45m deal.

Bristol-headquartered Ultimate has raised £1.83m in a placing at 12p and arranged a bank facility of up to £2m with Lloyds Banking Group to help fund this reverse takeover, which involves paying an initial £3.7m cash and £1.95m shares for Cheadle-based Ashley, as well as a staged £2.7m in cash between now and October 2012, if certain targets are met.

If approved, Ashley shareholders will have 13.4% of the enlarged group in a deal which AIM-quoted Ultimate's chief executive Richard Pepler describes as 'very, very complementary. They stop in client size where we start.' Both companies provide factoring and invoice discounting, with Ultimate also offering asset financing, services which banks' lending curbs have thrust into the limelight. Ultimate's average deal size is £110,000 against £16,000 to £17,000 for Ashley.

Should the deal go through, Ultimate, which increased pre-tax profits nearly 10% to £446,000 in the year to June on turnover up 35% to £6.4m, will add Ashley's present managing director Jonathan Cranston to the enlarged group's board as an executive director. A former stockbroker, he has run Ashley since its inception and helped lift its turnover 7% to £3m in the three years to last March, while pre-tax profits slid from £828,000 to £691,300.

Pepler insists the enlarged company will maintain Ultimate's policy of paying out roughly half of retained earnings in dividends, which analysts suggest could imply an attractive prospective yield of more than 5% with the shares at 15.50p. Despite continuing uncertainties on the economic and commercial fronts, Ultimate could repay a flutter.