OnDeck will be acquired by Enova International as it struggles amid the coronavirus pandemic.
This isn’t the first alt lender acquisition during the pandemic — and it likely won’t be the last.
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Under the deal Enova will acquire all outstanding shares of OnDeck in a cash and stock transaction valued at approximately $90 million, per a press release. Enova provides online financial services to nonprime consumers and small businesses, while OnDeck focuses on business loans. The transaction is expected to result in around $50 million in annual cost synergies and approximately $15 million in run-rate net revenue synergies to be fully phased in by year-end 2022.
Enova can further boost its product suite with this deal, while the acquisition marks an exit for OnDeck after continued pandemic struggles.
Enova already has an online lending business but can further enhance the operation by acquiring OnDeck. Enova will add the OnDeck brand, products, and services to its existing portfolio under the acquisition to create a combined company with a diverse offering for both consumers and small businesses. OnDeck had $4.7 billion in originations in 2019 and has served a user base of 7 million customers, giving Enova access to a significant loan book and customer base.
OnDeck has been struggling during the pandemic, likely forcing it to seek out an acquisition. The alt lender reported troubling Q1 2020 results in May, with a net loss of $59 million. This loss was attributed to a surge in coronavirus-related loan delinquencies on its platform, which more than tripled by the end of April. After reporting those results, it was rumored that OnDeck was looking for a fire sale — during which assets are often sold at a low price as the seller faces financial distress. Additionally, OnDeck let go of an unspecified number of employees earlier this month, despite resuming its lending business after a temporary halt during the crisis, and earned less from distributing PPP loans than its proprietary loans.
This isn’t the first alt lender acquisition during the pandemic — and we don’t think it’ll be the last. UK alt lender Ratesetter is in ongoing talks with Metro Bank about a potential acquisition, for example. The current economic downturn is making business and consumer borrowers riskier, as they have a less certain income and revenue, which increases the chances of delinquencies. As such, alt lenders will continue to struggle and we expect there to be more acquisitions of this kind, while others that can’t find a buyer will go out of business, like we saw with UK-based Growth Street earlier this month.
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Source:: Business Insider