IOOF has launched a $670 million takeover bid for financial advisory and insurance group SFG Australia.

It will offer shareholders 0.104 of an IOOF share for each share they hold in the acquisition target.

The deal values SFG shares at 90 cents based on an 18.5 multiple of its underlying profit for last year.

SFG directors have urged shareholders to approve the takeover when a meeting is convened in August.

IOOF expects the deal to generate pre-tax synergies of about $20 million a year in 2015/16.

SFG MD Tony Fenning says the proposal confirms his group’s position as an alternative to major banks.

“This potential merger is another positive step in continuing our journey to be the best advice group in Australia and leveraging the scale of IOOF to continue to offer clients the best advice,” he said.

IOOF MD Christopher Kelaher says the offer is part of the company’s long-term strategy to pursue acquisitions.

“The addition of SFG will increase IOOF’s financial advice and distribution segment considerably,” he said.

“This segment currently accounts for 14% of our revenue, which will rise to an expected 30% of revenue after the transaction.”

Mr Fenning will remain with the group as a senior adviser after the takeover.

He and fellow board members Jim Kilkenny and Sam Gannon will join a new SFG advisory forum for advisers in the group.