The SPAC fintech craze continues with two big names in fintech announcing deals last week. Silver Lion and OppLoans (they are renamed OppFi) are both made public via the PSPCs with the deals expected to be done by the end of Q2.
I met with the CEOs of both companies today to get feedback on their PSPC agreements. But before we get into those conversations, a little primer on PSPCs. SPAC stands for Special Purpose Acquisition Vehicle, these are public companies formed for the express purpose of acquiring an existing company. They’ve been around for decades, but have seen a resurgence in recent months. We follow all SPAC deals with fintech here.
MoneyLion enters into agreement with Fusion Acquisition Corp
Founded in 2013, MoneyLion started life as an online consumer lending platform. But CEO and founder Dee Choubey has always seen it as a simple entry point to offer a much wider range of financial services. But even as a lender, they took a different approach, offering a free PFM app to help their clients make better financial decisions. In 2016 (when I recorded this podcast interview with Dee) customers could connect bank or credit card accounts and receive information on how to save money or build a better financial life.
That initial loan product is gone now that MoneyLion has evolved into a full-service financial app or as it’s called the “all-in-one mobile banking experience”. They offer mobile banking, instant cash advances, investment accounts, credit originator loans, debit cards and more.
When I asked Dee why he decided to go public now, he talked about the higher profile of a public company and the increased ability to raise capital. They wouldn’t have been able to raise so much capital in the private markets, so getting a PSPC deal was the most efficient way to go.
Speaking of the deal, here are some of the details that were shared in the investor presentation. MoneyLion will merge with Fusion Acquisiton Corp (symbol: FUSE) in a $ 2.9 billion transaction. Fusion is chaired by Jim Ross, a former senior executive at State Street Global Advisors, and they launched an IPO in June 2020 with the goal of acquiring a fintech company with an enterprise value of less than $ 3 billion. of dollars. Ron Suber introduced the MoneyLion team to Fusion and advised on the transaction.
The deal has an implied transaction value of $ 2.4 billion and MoneyLion will receive net proceeds of $ 526 million. This will allow them to accelerate the development of a number of new products, including a Buy It Now offer, a secured credit card, and a crypto trading and rewards platform.
They made the decision a few years ago to move away from the lending industry and focus on developing their technology platform. What they do best is build software ingesting huge amounts of data. They still have a loan product, Credit Builder, for loans up to $ 1,000 over a maximum of 12 months, which is used by about 20% of their customers. Most will come out of this product after six to nine months.
Dee said MoneyLion was not interested in becoming a bank. They like the “light balance” approach so they can grow quickly and keep building new and better products. They like to provide a digital wallet and focus on technology. They will do anything a bank could do without the balance sheet part.
Let’s move on to the numbers from MoneyLion. They generated adjusted revenue at an annual execution rate of $ 102 million in the fourth quarter of 2020, a growth of 197% from the fourth quarter of 2019. Their annualized loss in the fourth quarter of 2020 was $ 26 million and they ended the year with 1.4 million users. They forecast a compound annual growth rate (CAGR) in revenue of 77%.
OppLoans merges with FG New America Acquisition Corp and becomes OppFi
OppLoans is not your typical fintech business. On the one hand, they never raised external equity. They were originally funded by the Schwartz family in Chicago and have now been profitable for many years. That in itself sets them apart (for an in-depth perspective listen to my interview with Jared Kaplan, CEO of OppLoans, since last November).
So deciding to go public wasn’t really about raising capital. In my conversation with Jared, he said the move was more about having a bigger megaphone. Because they haven’t gone the well-worn path of multiple rounds of venture capital, they have a lower profile than most of their contemporaries. He liked the PSPC route because it is more efficient and not as fun as an IPO.
OppLoans announced its SPAC merger last week (see the investor presentation here). They will merge with FG New America Corp (symbol: FGNA) which is led by Joe Moglia, former CEO and President of TD Ameritrade. At the same time, they renamed the company OppFi, so I will be referring to the company OppFi for the rest of this article.
The transaction involves a closing equity valuation of approximately $ 800 million and will be fully funded by cash in the trust. When you look at the financials, you’ll see that the multiples here are quite different from other deals. This represents a multiple of 12.2x of 2021 adjusted net income or just 6.9x of 2021 adjusted EBITDA.
OppFi is an online installment lender that has facilitated over 1.5 million loans with a total origination volume of over $ 2.3 billion, which translates to an average loan size of around $ 1,500. . They have a five-year revenue CAGR of over 100% and have been profitable for many years with an estimated 2020 Adjusted EBITDA of $ 99 million on revenue of $ 323 million.
OppFi started life as a direct lender with several state loan licenses. They switched to a banking partnership model a few years ago and are now fully committed to this model. They now have several banking partners and will continue with this model as they launch new products.
Speaking of new products, they just announced SalaryTap, an innovative new pay advance feature made possible by advancements in real-time payroll verification. These are loans similar in size to their commodity, up to $ 2,000, but loan repayments come from payroll deduction. This means that the interest rates are significantly lower, averaging around 30% APR. They build pipes into payroll systems right into their app for a seamless user experience.
The OppFi credit card is also coming in 2021. It will be an end-of-study product for OppFi customers and allow them to expand their customer base. It will also give them a potential foray into point-of-sale lending.
When I asked Jared about rebranding to OppFi, he said their role is to provide a lot more than loans. They want to be the destination of digital financial services for the everyday consumer. This means multiple products and the flexibility to move into other areas of finance beyond lending, but with a focus on improving the financial health of everyday consumers.
Learn from the PSPC experts
Last week on LendIt Fintech Digital We welcomed two leading SPAC fintech experts: Brendan Carroll from Victory Park Capital and Greg Smith from FT Partners. Both have been part of many PSPC transactions and their perspectives were very informative. It was a lively session and you can watch the recording here.