Back
Financial Institutions M&A: Sector trends - June 2019
bank vault door
Insight

Specialty finance/Marketplace lending

Financial institutions M&A sector trends: specialty finance/marketplace lending — H1 2019 and outlook for H2 2019

CURRENT MARKET

Upward, marginal

WE ARE SEEING

  • Market consolidation across product lines
  • Foreign inbound M&A (particularly from US buyers)
  • Trade consolidators scooping up competitors

KEY DRIVERS

  • Expanding universe of potential investors:
    • Trade consolidators—seeking scale (e.g., Factris's acquisition of Debifo), vertical integration (e.g., Paylate's acquisition of AmmoPay) and opportunities to conquer their own niches (e.g., Morses Club's acquisition of Hays Credit)
    • Banks—lower cost of capital associated with specialty finance businesses
    • Foreign investors—expanding into new geographies and tapping into new customers (e.g., Brightlane Corp.'s acquisition of VATBRIDGE)
    • Financial sponsors—opportunity to capture an under-serviced market
    • Investment managers—attractiveness of captive platforms (e.g., Downing's acquisition of Funding Empire)
  • Pressure from rising default rates encouraging market players to pullulate organically or acquire superior credit assessment technology

TRENDS TO WATCH

  • Differing regulatory prerogatives:
    • Consumers—safeguarding over market freedom (e.g., UK FCA's imposition of financial limits for UK investors' investment in P2P platforms)
    • SMEs—market freedom over safeguarding (e.g., UK Government's rejection of Treasury Select Committee's proposal to regulate SME wholesale lending market)

OUR M&A FORECAST

Specialty finance providers are likely to continue to attract buyer interest, particularly from trade consolidators, financial sponsors and US buyers.

 

Other financial services—Publicly reported deals & situations

 

Market consolidation

47 specialty finance M&A deals announced in H2 2018*

  • Bank Frick: Acquisition of majority equity holding of Tradico (June 2019)
  • Brightlane Corp.: Acquisition of VATBRIDGE (April 2019)
  • Downing: Acquisition of Funding Empire (March 2019)
  • Morses Club: Acquisition of Hays Credit (February 2019)
  • Duke Royalty: Acquisition of Capital Step (February 2019)
  • Praetura Asset Finance: Acquisition of Kingsway Asset Finance (January 2019)
  • Factris: Acquisition of Debifo (January 2019)
  • Barclays: Minority equity investment in MarketInvoice (January 2019)

 

New entrants

  • Propio: Successful £375,000 equity crowdfunding raise (April 2019)

 

Growing pressure on P2Ps

  • Funding Circle: 55% revenue increase in FY2018, amidst 3.00%–3.8% expected loan default rate (January 2019)

 

Government/ Regulatory approach

Concern:

  • UK FCA: Imposition of financial limits for UK investors' investment in P2P platforms, with effect from December 2019 (June 2019)

Support:

  • UK Government: Rejection of Treasury Select Committee's proposal to regulate SME wholesale lending market (January 2019)

 

 

FULL MAGAZINE
Financial institutions M&A: Sector trends

 

 

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2019 White & Case LLP