Financial Institutions M&A sector trends: Consumer finance — H1 2020 and outlook for H2 2020.
A time of temperance as COVID-19 covenant breach forbearance, payment holiday and repossession deferral relief measures take their toll.
Overview
CURRENT MARKET
WE ARE SEEING
- Trade consolidators bulk up—particular focus on payroll finance (e.g., Salary Finance's acquisition of Neyber and Greensill's acquisition of Earnd)
- Disruptive residential lenders continue to attract capital (e.g., residential mortgage providers Verteva and Trussle both successfully raised funds in H1 2020)
- Payday lenders exit stage-left (Peachy, Uploan and Privilege Wealth collapse into administration)
KEY DRIVERS/ CHALLENGES
- Trade consolidators:
- Need new distributional channels (e.g., NewDay's acquisition of Dekko)
- Integrate vertically (e.g., Max IT Finance's acquisition of CreditGuard)
- Capitalise on stressed opportunities (e.g., Salary Finance's acquisition of Neyber)
- Financial sponsors—opportunity to:
- Conquer niche market segments (e.g., Anthemis's equity investment in gig economy lender Wollit)
- Disrupt incumbents (e.g., EQT Ventures' equity investment in Anyfin)
- Regulatory intervention:
- Interest rate caps cripple mega-margin lending (e.g., Polish UOKiK's cap on non-interest costs of credit and interest charged for late payment on consumer loans)
- Focus on affordability and debt spirals (e.g., UK FCA's 2021 focus on consumer harm and avoiding unaffordable debt)
TRENDS TO WATCH
- Market consolidation as consumer lenders suffer strain from:
- Lower interest rates for longer in the wake of COVID-19
- Government-backed COVID-19 covenant breach forbearance, payment holiday and repossession deferral relief measures
- Increasing focus of regulators on potentially harmful lending practices
- POS / Buy Now Pay Later—strong online retail and temporary reduction in income reduction could mean well-positioned firms have not been dented by Covid19. Watch for strategic industry acquisition and global expansion
OUR M&A FORECAST
Disruption across the European consumer finance market is likely to continue in the medium-term as the true impact of government-backed COVID-19 consumer relief measures becomes clearer. M&A is likely to remain flat until equity valuation volatility settles
Publicly reported deals & situations
Healthy buyer/ investor appetite
Market highlight:
ZipCo shares surged in June 2020 on its expansion into the US through QuadPay. ZipCo inherited an initial stake in QuadPay through its acquisition of PartPay. White & Case advised ZipCo on its acquisition of PartPay in 2019, a strategic transaction which gave ZipCo access to markets in the US, UK, New Zealand and South Africa
- Santander: Acquisition of remaining 25% of Santander Consumer Finance (June 2020)
- Lock Trust: Acquisition of Axxa Fintech Solutions (April 2020)
- Salary Finance: Acquisition of Neyber (March 2020)
- Greensill: Acquisition of Earnd (March 2020)
- Ally Financial: Acquisition of CardWorks (February 2020)
- Max IT Finance: Acquisition of CreditGuard (February 2020)
- NewDay: Acquisition of Dekko (January 2020)
Smaller lenders stockpile lending firepower
- LaterPay (Point-of-sale lending): US$10 million equity investment by existing investors (June 2020)
- Checkout.com (Point-of-sale lending): Successful US$150 million Series B funding round, led by Coatue Management (June 2020)
- Upgrade (Consumer credit): Successful US$40 million Series D funding round, led by Santander InnoVentures (June 2020)
- Tillhub (Point-of-sale lending): Equity investment by Heidelpay (June 2020)
- Tabby (Point-of-sale lending): Successful US$7 million Seed funding round, led by Raed Ventures (June 2020)
- FlexxPay (Payroll finance): Equity investment from DIFC Fintech Fund (June 2020)
- Go Rise (Migrant worker lending): Equity investment from DIFC Fintech Fund (June 2020)
- NOW Money (Payroll finance): Equity investment from DIFC Fintech Fund (June 2020)
- Shahry (Point-of-sale lending): Successful US$650,000 pre- Seed funding round, led by Egyptian Gulf Holding for Financial Investments (June 2020)
- Anyfin (Consumer loan refinancing): Successful US$30 million Series B funding round, led by EQT Ventures (May 2020)
- Verteva (Residential mortgages): Successful US$33 million funding round, led by Bolton Equities (May 2020)
- Smava (Consumer credit): Successful €22 million Series E funding round, led by Vitruvian Partners (May 2020)
- Wollit (Gig economy finance): Successful £1 million Seed funding round, led by Anthemis (February 2020)
- Ramp (Credit cards): Successful US$25 million Venture funding round, led by Founders Fund (February 2020)
- ChargeAfter (Point-of-sale lending): Equity investment by Visa (February 2020)
- Trussle (Residential mortgages): Successful £7.5 million Series B funding round, led by Rabo Frontier Ventures (January 2020)
Demise of payday lending
Market highlight:
Poland's UOKiK introduced new regulations which cap the maximum noninterest costs of credit and interest charged for late payment on consumer loans
- Peachy: Winding up (March 2020)
- Uploan: Winding up (March 2020)
- Privilege Wealth: Winding up (January 2020)
Partnership model
- First Digital Bank: Debit card JV with Isracard (May 2020)
- Max IT Finance: European and US payment clearing JV with Nuvei (February 2020)
Click here to download Financial services M&A experiences shortness of breath in H1 2020 (PDF)
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