Private Equity M&A Trends: Digital Lending Platforms Continue To Attract Large Amounts Of Interest

In a recent report on M&A sector trends in UK consumer finance released by White and Case, a recognised international law firm, Ashley Ballard, Partner at the firm stated: “The UK specialty finance market is at an inflexion point. If first movers successfully IPO, access to additional capital would boost credit availability for SMEs and consumers, as well as the ABS market.”

The report looks at three prominent sectors through an M&A lens, noting that speciality finance/marketplace lending (i.e. alternative online lending platforms) has seen the biggest growth in strategic and private equity interest.

Finstar Finacial Group was part of one of the leading private equity deals mentioned in the report and Chairman of the Finstar Financial Group, Oleg Boyko, described his international PE firm’s investment strategy:

Finstar is stage-agnostic, but the core focus will be on early-stage deals from the seed stage through to Round B. Finstar will maintain its focus on transformational financial services platforms and businesses. We will look more broadly at our investment thesis and aside from the core focus on FinTech and InsureTech, we will also seek FinTech-enabling models within realms of AI, data science, AdTech and MarTech.

A closer look at the three sectors

Credit cards/Consumer credit

The sector is seeing an upward marginal trend with healthy buyer appetite from trade consolidators and financial sponsors.
Although there remains a great opportunity for deals within the sector, stricter rules by regulatory bodies mean that M&A activity is likely to remain fairly steady.

New rules by the FCA in the UK, for example, require providers to implement a 3—year recovery plan for customers with restrictive finances, including the reduction or cancellation of fees and interest. According to the report, it is estimated that this measure alone will cost providers between £310 million and £1.3 billion per year. As such, buyers are erring on the side of caution.

Some of the more noteworthy PE deals in this sector include Goldman Sachs buying Clarity Money, a mobile app that helps users to manage their finances, including finding better credit card deals. The deal is said to be worth $100 million.

Investment firm, Värde Partners, purchased a remaining 49% stake in WiZink, a platform specialising in consumer loans through its credit card unit, for an undisclosed amount, and private investment firm, Elliott Advisors, invested $150 million in Chetwood Financial, a challenger retail bank that plans to launch a disruptive loan offering as one of its first consumer finance products.

Payday Lenders

Payday lenders are seeing continued financial sponsor support. Market participants with healthier balance sheets are diversifying to achieve growth in the medium-term loan sectors.

However, at the moment it would seem that the majority of providers are mostly focused on implementing internal policies and processes that comply with increased regulatory requirements, rather than expansion through investment deals.

Saying that, there are a couple of PE deals worth noting.  An investor group led by Apollo Global Management and Värde Partners bought a 40.5% stake in OneMain, a consumer finance company, in a deal that is said to be worth between $1.5 billion and $2 billion.
Oakam, a digital microlender and challenger to this space, also secured a £35 million debt investment from Victory Park Capital, aimed at accelerating its lending activity in the UK.

Speciality finance/Marketplace lending

Speciality finance and marketplace lending platforms have seen the biggest volume of deal activity with a significant upward trend in the sector.
This is also consistent with another report published by, highlighting that, at €5.5 billion, Q2 2018 was a record breaking period for European VC investment, listing fintech as one of the key industry verticals.

This should not come as a surprise, as described by Oleg Boyko, Finstar CEO: “There are roughly 2.5 billion people in the world underserved by traditional financial products and services. Those people are often concentrated in developing economies and frontier markets. However, even in mature markets, there are first-time financial consumers – Millennials in particular – for whom the old ways of banking don’t stack up. What we have, therefore, is a brilliant opportunity to rethink financial services and to reframe financial services so they serve this community.”

According to White and Case’s M&A report, there are a number of key drivers that fuelled this high-level of activity:

  • A growing investor base that includes sponsors, banks and trade consolidators.
  • Increasing amount of joint ventures and business partnerships between service providers and market participants.
  • 2017 saw huge funding successes meaning that in 2018 the big players hold excess resources available for M&A deals.
  • Governmental support for responsible consumer and SME alternative financing resulted in the growth of new lending platforms.

In the EU specifically, the sector is also seeing a greater focus on single market harmonisation and regulatory oversight that increases the scope for growth in service offerings and diversification of these lending platforms.

There were a number of PE deals of note in this sector, including:

  • Kinnevik’s (a European investment fund) $16 million investment into smart payment solution, Pleo.
  • Cerberus Capital Management L.P. acquiring Bluestone Group’s Australasian lending and portfolio management operations (amount not disclosed).
  • Asset-backed lender, White Oak, acquired the LDF Group, a finance company providing loans to small and medium-sized organisations (amount not disclosed).
  • Quilam Capital made an equity investment in guarantor loan provider, 1plus1 Loans, in a multimillion-dollar deal, and also in asset-backed, SME lender, Catfoss Finance.

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