Why Ally Financial Is Buying CardWorks For $2.65 Billion

By Amit Chowdhry ● February 25, 2020
  • Ally Financial recently announced that it entered a definitive agreement to buy CardWorks in a transaction valued at approximately $2.65 billion

Ally Financial recently announced that it entered a definitive agreement to buy CardWorks in a transaction valued at approximately $2.65 billion. Cardworks is a privately held company with $4.7 billion in assets and $2.9 billion in deposits. And under the terms of the agreement, Merrick Bank (a wholly owned subsidiary of CardWorks) will merge into Ally Bank.

The acquisition of CardWorks is going to further diversify Ally’s product offerings, adding an established credit card platform, full-spectrum servicing and recovery operation, and a nationwide merchant acquiring business. And these additional capabilities will immediately enhance Ally’s direct bank deposit and consumer product platform and complement the company’s market-leading auto finance, insurance, and commercial product lines. And upon completion of the transaction, Ally will provide over 11 million customers in all 50 states with compelling secured and unsecured banking products.

CardWorks is also known as a top-202 U.S. credit card issuer focused on the non-prime segment with a complementary full-spectrum unsecured servicing operation that includes third-party servicing and recovery capabilities. And CardWorks provides recreational and marine consumer finance products and is a top-152 merchant acquirer in the United States.

The consideration for the transaction will include approximately $1.35 billion of cash and $1.30 billion in Ally common stock (or 39.5 million shares). And the merger consideration remains subject to closing equity and other adjustments and fill-or-kill rights.

Don M. Berman, Chairman, Chief Executive Officer and Founder of CardWorks, owns 70% of CardWorks and is receiving a combination of cash and Ally common stock as his consideration. And shares of Ally common stock granted to Berman will be subject to a lock-up agreement restricting the sale or transfer of 100% of his shares until the one-year anniversary of the closing date, at which point Berman can sell or transfer up to one-third of his shares. Berman will also join Ally’s Board of Directors and become a member of Ally’s executive management team following closing.

There are a number of strategic and financial benefits of the proposed acquisition. This includes the alignment with Ally’s long-term strategic objectives: The acquisition of CardWorks directly aligns with Ally’s customer-centric strategy of offering differentiated consumer product offerings supported by a growing and low-cost deposit base. And the deal complements Ally’s existing product offerings, adding a core banking product: CardWorks is a proven credit card lender with complementary full-spectrum servicing and merchant services. The credit card market has been growing at a 5% compound annual growth rate since 2013 and presents a sizeable market opportunity for the combined company.

Plus the deal presents a strong cultural fit with customer-first approach driven by experienced management team: CardWorks’ cycle-tested leadership team has built the company into a mature customer-centric business through best-in-class underwriting, pricing, and risk management capabilities across its 32 years in operation.

The deal also enhances Ally’s financial profile, introducing additional growth opportunity: Immediate enhancement of Ally’s revenues and earnings stream through strong portfolio risk-adjusted returns and diversified fee and interchange revenue.

Pro forma for the transaction, CardWorks would have increased Ally’s 2019 full-year results across many metrics, including 17% higher adjusted total net revenue6 and 18% higher core pre-tax income.

The deal is expected to close in the third quarter of 2020. And each company’s board of directors has unanimously approved the acquisition.

Key Quotes:

“CardWorks represents an industry-leading credit card platform in the U.S., and this acquisition serves as an important milestone in Ally’s evolution to be a full-service financial provider for our customers. I have tremendous admiration for the three decades of leadership Don Berman has provided as founder and CEO and remain impressed with what the entire team has accomplished in building a resilient, growing business with a commitment to the customer. Beyond the compelling strategic rationale and financial enhancements this transaction brings, CardWorks is an ideal cultural fit for Ally. Both companies share a deep-rooted history of disciplined risk management and an obsession over the customer. I’m thrilled to welcome CardWorks to the Ally team and look forward to adding value for all of our stakeholders.”

– Ally Chief Executive Officer Jeffrey J. Brown

“I’m incredibly excited for this next chapter of CardWorks. Ally has built an industry-leading online banking franchise while simultaneously re-affirming the market-leading positions of its auto finance and insurance businesses. At CardWorks, we’ve successfully built a people-centric, compliance-focused organization enabled by technology with a mission to delight our clients and customers, and Ally represents an ideal partner. In leveraging Ally’s commitment to innovation and adaptiveness, the combined company will be well-positioned to meet the financial needs of our ever-growing customer base and deliver sustainable growth and performance. Importantly, Ally’s inclusive and purpose-driven culture represents an important shared value between the two companies. I’m energized by the opportunity the combination of these two great businesses will provide to our customers and employees.”

– Don M. Berman, Chairman, Chief Executive Officer and Founder of CardWorks