Europe's consumer finance decacorns stumble as their valuations crumble.

Overview

Current market

• Flat M&A activity

We are seeing

• Established banks:

  • Provide equity support for developing consumer finance providers (e.g., Crédit Mutuel Arkéa's participation in Younited Credit's €60 million venture funding round)

  • Provide lifeline debt support for established consumer finance providers (e.g., BNP Paribas' participation in Fluro's €200 million debt funding round and Barclays' participation in Liberis' £140 million debt funding round)

  • Hover up buy-now, pay-later providers (e.g., Mediobanca's acquisitions of HeidiPay Switzerland and Soisy)

• Buy-now, pay-later providers at all stages of development still attract capital notwithstanding tightening VC purse strings:

  • Early-stage fundraisings (e.g., Tranch's US$100 million seed funding round)

  • Series B/C fundraisings (e.g., Tabby's US$58 million Series C funding round and Zilch's US$50 million Series C extension funding round)

  • Late-stage fundraisings (e.g., Klarna's US$800 million equity funding round)

• Smaller consumer lenders seek scale through consolidations with competitors and partnerships

• Consumer finance providers tap industrial-scale debt servicers to manage ballooning portfolios (e.g., PayPal's disposal of €40 billion French, German, Italian, Spanish and UK BNPL loans to KKR)

Key drivers/challenges

• Financial sponsor appetite continues—verticals which received most interest in the last 12 months were BNPL, embedded finance and mortgage lending
• Market conditions have differing impacts on consumer lenders:
  • Cost of living crisis materially increased borrower appetite for BNPL products (e.g., UK shopper BNPL utilisation increased by more than 10%)
  • Soaring mortgage interest rates materially decreased borrower appetite for housing loans (e.g., eurozone demand for housing loans fell by 74%)
• Buy-now, pay-later platforms turn to interest-bearing lending through BigTech (e.g., vaIU's partnership with Amazon Egypt)
• Consumer finance providers consolidate with competitors in search of:
  • Expanding licencing footprint (e.g., Scalapay's acquisition of Cabel IP) 
  • Conquering niches (e.g., Acorns' acquisitions of GoHenry and Pixpay) 
  • Enhancing geographic reach (e.g., Remity's acquisition of Rewire and ColCap's acquisition of 80% of Molo)
  • Broaden product suite (e.g., Zopa's acquisition of DivideBuy and SoFi Technologies' acquisition of Wyndham Capital Mortgage)
  • Deeper customer penetration (e.g., Schufa's acquisition of Forteil)

Trends to watch

• Growing pressure on consumer lenders to deliver profitability in order to attract PE/VC financial support
• Increasing focus of regulators on:
  • BigTech's entry into consumer finance (e.g., UK FCA's study into BigTech's entry into financial services)
  • Consumer duty obligations and potentially harmful lending practices (e.g., UK FCA proposed new measures for marketing financial products (including BNPL) and launched its new Consumer Duty rules)

Our M&A forecast

Market conditions to continue to have a polarising impact on viability of lending models—rising interest rates are likely to dampen appetite for mortgages while consumer appetite for BNPL/POS offerings are likely to rise. However, borrower reliance is often accompanied by tighter and more invasive regulation.

Other financial services—Publicly reported deals & situations

Healthy buyer/investor appetite

Strategics:

• Cassa Centrale Banca (Online consumer lending): Acquisition of Prestipay (June 2023)
• Mediobanca/Compass (BNPL): Acquisition of HeidiPay Switzerland (June 2023)
• Crédit Mutuel Arkéa/Confidis (Online consumer lending): Acquisition of Magyar Cetelem Bank (May 2023)
• FeverTree Finance (Consumer finance): Acquisition of Payflex Proprietary (March 2023)
• Eurobank Bulgaria (Consumer finance): Acquisition of BNP Paribas Personal Finance Bulgaria (December 2022)
• Mitsubishi UFJ Financial Group (Consumer finance): Acquisition of Home Credit Group's Filipino and Indonesian businesses (November 2022)
• Mediobanca/Compass (BNPL): Acquisition of Soisy (October 2022)
• BNP Paribas (Consumer credit): Participation in €200 million debt funding round for Fluro (October 2022)
• Cembra Money Bank (BNPL): Acquisition of Byjuno and Intrum Finance Services (September 2022)
• Nationwide (PropFinance): Minority equity investment in Kettel Homes (July 2022)

PE/VC:

• Soma Capital and FoundersX (BNPL): Participation in US$100 million Seed funding round for Tranch (January 2023)
• Sequoia Capital India (BNPL): Participation in US$58 million Series C funding round for Tabby (January 2023)
• Atalaya Capital Management and Partners for Growth (BNPL): Participation in US$150 million debt funding round for Tabby (August 2022)
• IAG Silverstripe (Mortgage lending): Participation in £35 million Series A funding round for Perenna (August 2022)

Smaller lenders consolidate market share

• SaveLend Group (Marketplace lending): Acquisition of Lendify (April 2023)
• SoFi Technologies (Mortgage lending): Acquisition of Wyndham Capital Mortgage (April 2023)
• Acorns (Children's financial education): Acquisition of GoHenry (April 2023)
• Acorns (Children's financial education): Acquisition of Pixpay (April 2023)
• ColCap (Buy-to-let mortgages): Acquisition of 80% of Molo (March 2023)
• Groupe Meilleurtaux (Consumer credit): Acquisition of MiD Finance (March 2023)
• Scalapay (BNPL): Acquisition of Cabel IP (March 2023)
• Zopa (BNPL): Acquisition of DivideBuy (February 2023)
• Schufa (Consumer credit): Acquisition of Forteil (December 2022)
• Remity (Migrant worker finance): Acquisition of Rewire (August 2022)
• valU (Consumer credit): Acquisition of Paynas (August 2022)

Smaller lenders stockpile lending firepower

• M-Kopa (Consumer credit): Successful US$55 million funding round led by Sumitomo Corporation (May 2023)
• Tranch (BNPL): Successful US$100 million seed funding round led by Soma Capital and FoundersX (January 2023)
• Tabby (BNPL): Successful US$58 million Series C funding round led by Sequoia Capital India (January 2023)
• Younited Credit (Consumer credit): Successful €60 million Venture funding round led by Eurazeo, Crédit Mutuel Arkéa, Bpifrance and Goldman Sachs (December 2022)
• Fluro (Consumer credit): Successful €200 million debt funding round led by BNP Paribas (October 2022)
• Liberis (Embedded finance): Successful £140 million debt funding round led by Barclays and BCI Finance (September 2022)
• Tabby (BNPL): Successful US$150 million debt funding round led by Atalaya Capital Management and Partners for Growth (August 2022)
• Perenna (Mortgage lending): Successful £35 million Series A funding round led by IAG Silverstripe (August 2022)
• Zilch (BNPL): Successful US$50 million Series C extension funding round led by Ventura Capital (June 2022)
• Klarna (BNPL): Successful US$800 million Equity funding round led by the existing main shareholders (July 2022)
• Kettel Homes (Mortgage lending): Successful equity investment from Nationwide (July 2022)

Partnership model

• Zilch (BNPL): Partnership with StepChange (February 2023)
• MoCo (Mortgage lending): Mortgage lending JV with An Post (August 2022)
• vaIU (BNPL): BNPL partnership with Amazon Egypt (July 2022)

Consumer finance providers tap industrial-scale debt servicing

Sellers:

• PayPal (France, Germany, Italy, Spain and UK): Disposal of €40 billion European BNPL loans to KKR (June 2023)

Acquirers:

• KKR (France, Germany, Italy, Spain and UK): Acquisition of €40 billion European BNPL loans from PayPal (June 2023)

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