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Financial institutions M&A: Sector trends - January 2021
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Consumer Finance

Financial institutions M&A sector trends: consumer finance — H2 2020 and outlook for 2021

Financial sponsors back niche providers—child-friendly, gig economy and POS finance attract interest in H2 2020

 

Overview

CURRENT MARKET

  • Uptick in M&A activity

WE ARE SEEING

  • Trade consolidators bulk up (e.g., Goldman Sachs's acquisition of General Motors' credit card business)
  • Financial sponsors back niche consumer finance providers:
    • Child-friendly (e.g., Gaia Capital Partners', Edison Partners' and Citi Ventures' participation in US$40 million equity funding round for GoHenry and Canapi Ventures' and TTV Capital's participation in US$215 million Series C funding round for Greenlight Financial Technology)
    • Gig economy (e.g., Green Dot's participation in US$7.5 million Series A funding round for Gig Wage and Group 11's participation in US$15 million Series A funding round for Lili)
    • POS finance (e.g., Gauss Ventures' participation in US$30 million funding round for Zilch and GIC and Durable Capital Partners' participation in US$500 million Series G funding round for Affirm)
  • Demise of UK payday lenders (e.g., bankruptcy of MYJAR, Privilege Wealth, Sunny and PiggyBank)

KEY DRIVERS/CHALLENGES

  • Trade consolidators:
    • Levelling out of volatile trading and IB product segments
    • Growing focus on consumer banking market share
  • Financial sponsors spot the opportunity to capitalise on:
    • Under-serviced market segments
    • Ride the e-commerce wave
    • Collect and monetise customer data
  • End of an era for UK payday lending:
    • Interest rate caps introduced by the UK Financial Conduct Authority in 2015 take their toll on the remaining lenders
    • Customer compensation claims resulting from payday lenders’ sharp business practices (i.e., industry-wide loan mis-selling)
    • Availability of alternative loan products (e.g., payroll finance, buy now pay later, etc.)
    • Government-backed financial support during the COVID-19 pandemic making it more difficult for payday lenders to recoup borrowings

TRENDS TO WATCH

  • Government-backed COVID-19 covenant breach forbearance, payment holiday and repossession deferral relief measures to adversely impact profitability of consumer finance businesses
  • Uptick in regulatory enforcement action against lenders for TCF failings (e.g., UK FCAs £26 million fine levied on Barclays for improper treatment of retail borrowers who fell into arrears or experienced financial difficulties)
  • Regulatory clampdown of credit-like products which may attract high-cost credit customers (e.g., employee salary advance schemes and exempt credit agreements)

 

OUR M&A FORECAST

Despite uncertainty surrounding the true impact of government-backed COVID-19 consumer relief measures, trade and financial sponsor investment is likely to continue in the medium-term as investors seek to capitalise on growth in e-commerce (which is likely to extend beyond the COVID-19 pandemic).

 

Other financial services—Publicly reported deals & situations

Healthy buyer appetite

In a letter to UK Chancellor Rishi Sunak, Bank of England Governor Andrew Bailey called for regulation of UK non-bank financial firms to be toughened in light of the COVID-19 pandemic. S&P Global (June 2020)

  • Affirm (POS): Acquisition of PayBright (December 2020)
  • Goldman Sachs (Consumer credit): Acquisition of General Motors' credit card business (October 2020)
  • AfterPay (Consumer finance): Acquisition of Pagantis and PMT Technology from NBQ Corporate (August 2020)
  • eToro (Crypto finance): Acquisition of Marq Millions (July 2020)

 

Non-High Street lenders stockpile lending firepower

Deal highlight:

White & Case represented Gaia Capital Partners, the Paris-based investment fund specialising in growth companies, on its investment, alongside Edison Partners and Citi Ventures, in the US$40 million equity funding round of GoHenry, the money app and prepaid debit card aimed at encouraging healthy financial habits in 6-to-18-year-olds.

Deal highlight:

White & Case represented Habito, recently voted best Mortgage Broker of 2020 in the British Bank Awards, on its £35 million Series C funding round.

  • Zilch (POS): Successful US$30 million funding round, led by Simon Nixon and Gauss Ventures (December 2020)
  • Updraft (Consumer credit): Successful £16 million funding round, led by Quilam Capital (December 2020)
  • Pockit (Pre-paid debit cards): Successful £15 million Series B crowdfunding round (December 2020)
  • GoHenry (Child-friendly pre-paid debit cards): Successful US$40 million equity funding round, led by Gaia Capital Partners, Edison Partners and Citi Ventures (December 2020)
  • Gig Wage (Gig economy finance): Successful US$7.5 million Series A funding round, led by Green Dot (October 2020)
  • Lili (Freelancers banking): Successful US$15 million Series A funding round, led by Group 11 (October 2020)
  • Molo Finance (Online mortgages): Successful US$266 million Series A funding round, led by Patron Capital (October 2020)
  • Greenlight Financial Technology (Child-friendly debit cards): Successful US$215 million Series C funding round, led by Canapi Ventures and TTV Capital (Septemeber2020)
  • Affirm (POS): Successful US$500 million Series G funding round, led by GIC and Durable Capital Partners (September 2020)
  • Petal (Consumer credit): Successful US$55 million Series C funding round, led by Valar Ventures (Septemeber2020)
  • Copper (Teen banking): Successful US$4.3 million Seed funding round, led by PSL Ventures (August 2020)
  • Hammock (Landlord banking): Successful £1 million Seed funding round, led by Fuel Ventures and Ascension Ventures (August 2020)
  • Habito (Digital mortgage lending): Successful £35 million Series C funding round, led by SBI Group, Augmentum Fintech and Mojo Capital (August 2020)
  • True Link (Credit for senior citizens): Successful US$35 million Series B funding round, led by Khosla Ventures and Centana Growth Partners (July 2020)

 

Demise of payday lending

  • MYJAR (UK): Collapse into administration (December 2020)
  • Privilege Wealth (UK): Appointment of a liquidator (October 2020)
  • Elevate Credit International Limited/Sunny (UK): Collapse into administration (July 2020)
  • PiggyBank (UK): Collapse into administration (July 2020)

 

Partnership model

  • Westpac (Australia): Disposal of Zip and partnership with Afterpay (October 2020)

 

Click here to download 'Financial services M&A stages a herculean comeback in H2 2020, finishing the year on a high' PDF.

 

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