Enova acquires OnDeck for $ 90 million
In a deal that will shake the fintech space Enova announced this afternoon that they are acquiring OnDeck for $ 90 million. OnDeck has struggled since the pandemic began, to say the least, as small businesses across the country face unprecedented stress.
OnDeck reported in their April Q1 earnings call that 45% of their loan book was in some state of default as they reported a net loss of $ 59 million. she reported Q2 results this afternoon and they somehow managed to make a $ 2.2 million profit on underwriting operations that were down 89% from the previous quarter when they put new lending on hold.
OnDeck CEO Noah Breslow was at the Enova earnings conference this afternoon and said their loan book bottomed out in April and things have improved significantly since then as the economy opened up. They have reduced their loan loss provisions as the future looks brighter.
Anyway, back to Enova. They are a publicly traded company primarily focused on consumer credit and were spun off from Cash America in 2014. Incidentally, one of their brands, short-term lender CashNetUSA, was actually founded by Al Goldstein (co-founder of Avant) in 2004, which he sold to Cash America two years later. Another brand is NetCredit, which is more of a premium consumer lender (I have the head of NetCredit on the Podcast back in 2018).
While Enova has focused on consumer credit with a number of products, they have begun to break into small business lending. They have two brands for small business: Headway Capital and The business supporter. While setting up Headway Capital in-house, Enova acquired business supporters so in 2015 they have a certain history of acquisitions. Taken together, Enova’s small business lending businesses make up only 15% of its loan book. After the acquisition of OnDeck, that number will rise to 60%. That gives you an idea of how big this is for Enova.
Although Enova has scaled back lending significantly since the pandemic began, it is in a strong position financially. In their second quarter financials released this afternoon, despite the slowdown, they show net income of $ 48 million for the second quarter on revenue of $ 259 million and have $ 321 million in cash.
According to Press release announcing the takeover The $ 90 million transaction valued OnDeck at $ 1.38 per share, a 90% premium over its closing price of $ 0.73 on July 27th. The transaction comprises $ 8 million in cash and each OnDeck share will be worth 0.092 Enova shares. The transaction was unanimously approved by both board members and is expected to close this year.
I have to admit I didn’t have Enova on my bingo card for potential OnDeck buyers. While Enova is a strong company, it’s best known for its short-term consumer loans, so I didn’t think they’d really fit. I was expecting the buyer to be another small business lender, regional bank, large community bank, or possibly even a top 10 bank like PNC (which is an OnDeck / ODX customer).
I heard the entire win call from Enova this afternoon and it is clear that they are currently in a strong financial position and have a lot of cash on hand. I would call this an opportunistic deal that turns Enova from a tiny player into a major force in small business lending.
In my opinion, Noah and the board did the right thing and found a home for OnDeck, its employees and its shareholders. While this probably wasn’t what anyone had imagined in their wildest dreams at the start of the year, it was important that the OnDeck business survive and be able to thrive again. This deal offers that opportunity.
The fintech landscape is changing before our eyes as I imagine this won’t be the last pandemic-driven acquisition this year.