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Financial institutions M&A: Sector trends - January 2021
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Insight

Specialty Finance/Marketplace Lending

Financial institutions M&A sector trends: specialty finance/marketplace lending — H2 2020 and outlook for 2021

Specialty finance businesses abandon retail investor roots in favour of institutional support

 

Overview

CURRENT MARKET

  • Some, but limited, M&A activity

 

WE ARE SEEING

  •  Trade consolidators:
    • Bulking-up operations (e.g., Faubourg Conseil's acquisition of HLA Fleet Services and Arval's acquisition of UniCredit Leasing (Austria))
    • Favouring vertical integration (e.g., Morses Club's digital payments JV with Modular Finance)
  • Financial sponsors turbocharge lending capacity through:
    • Participation in fundraisings by new entrants (e.g., Mouro Capital's participation in Uncapped's US$26 million funding round and Centerbridge's participation in Auxmoney's US$150 million funding round)
    • Acquisition of established businesses with opportunity for growth (e.g., Silver Lake's acquisition of Meilleurtaux.com and Intriva Capital's acquisition of Lending Works)

 

KEY DRIVERS/CHALLENGES

  • Differing bank prerogatives:
    • Cashing-out of 'marketable' non-core specialty finance businesses (e.g., Autobank's disposal of HLA Fleet Services and UniCredit's disposal of UniCredit Leasing (Austria))
    • Deploying M&A capital towards opportunistic buys (e.g., Metro Bank's acquisition of RateSetter)
    • Deploying internal resources towards home-grown specialty finance units (e.g., BBVA's launch of BBVA Global Supply Chain Finance)
    • Testing the water through strategic partnerships (e.g., UBS's strategic partnership with Houzy)
  • Financial sponsors and founders see opportunity to disintermediate banks and capitalise on high demand for reverse factoring amidst COVID-19 uncertainty

 

TRENDS TO WATCH

  • Stressed/distressed M&A opportunities involving P2P lenders as rising default rates, jittery retail investor sentiment and falling demand for P2P loans (as an alternative to 'cheaper' governmentbacked COVID-19 loan relief alternatives) drive down valuations
  • Increasing regulatory scrutiny of supply chain finance/ reverse factoring, which does not appear as debt (but rather as trade payables) on a borrower's balance sheet and therefore may obscure true financial health

 

OUR M&A FORECAST

Dichotomy between specialty finance businesses which rely on retail investors to fund lending from those which rely on institutional support. Specialty finance businesses are likely to favour institutional support in the short/medium-term, migrating away from original business models.

 

Other financial services—Publicly reported deals & situations

Growing buyer/ investor/ partner interest

Private equity/Venture capital:

  • Mouro Capital (Start-up funding): Participation in US$26 million funding round for Uncapped (September 2020)
  • GIC and Durable Capital Partners (POS finance): Participation in US$500 million Series G funding round for Affirm (September 2020)
  • Centerbridge (P2P lending): Participation in US$150 million funding round for Auxmoney (September 2020)
  • Disruptech (B2B e-commerce): Participation in 'seven-digit' Seed funding round for Fatura (August 2020
  • Silver Lake (Home credit): Acquisition of Meilleurtaux.com (July 2020)
  • Intriva Capital (P2P lending): Acquisition of Lending Works (July 2020)

FI:

  • Metro Bank (P2P lending): Acquisition of RateSetter (September 2020)
  • Deutsche Bank (Supply chain finance): Equity investment in Traxpay (July 2020)
  • UBS (Homeowner finance): Acquisition of minority stake in Houzy (July 2020)

Trade consolidators:

  • Société Générale Financière (Leasing): Acquisition of 5% of Compagnie Internationale de Leasing (December 2020)
  • Faubourg Conseil (Fleet financing): Acquisition of 64.1% of HLA Fleet Services (November 2020)
  • BNP Paribas/Arval (Fleet financing): Acquisition of UniCredit Leasing (Austria) (July 2020)

Bank diversification:

  • Metro Bank (P2P lending): Acquisition of RateSetter (August 2020)

 

Specialty finance businesses scaling up

The world's top banks are set to earn US$27 billion from financing supply chains in 2020, which represents a rise of about 5.5%, compared with an average 2% increase in the previous four years. S&P Global (June 2020)

The COVID-19 pandemic exposed the fragility of global supply chains, and as a result, banks are now seeing a growing interest in what is still a nascent funding tool: sustainable supply chain finance. S&P Global (August 2020)

  • Uncapped (Start-up funding): Successful US$26 million funding round, led by Mouro Capital (September 2020)
  • Auxmoney (P2P lending): Successful US$150 million funding round, led by Centerbridge (September 2020)
  • Selina Finance (SME lending): Successful £42 million Series A funding round, led by Global Founders Capital and Picus Capital (July 2020)

 

Partnering to brave the COVID-19 pandemic

  • Morses Club/Shelby Finance (Payments): Digital payments JV with Modular Finance (August 2020)

 

Home-grown capability

  • BBVA (Supply chain finance): Launch of BBVA Global Supply Chain Finance across Europe, the US, Mexico and Peru (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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