Why Enova (ENVA) Is Buying OnDeck (ONDK) For About $90 Million

By Amit Chowdhry ● July 29, 2020
  • Enova International Inc (NYSE: ENVA) announced it is buying On Deck Capital Inc (NYSE: ONDK) in a cash and stock transaction valued at approximately $90 million

Enova International Inc (NYSE: ENVA) announced it is buying On Deck Capital Inc (NYSE: ONDK) in a cash and stock transaction valued at approximately $90 million. The implied price of $1.38 per OnDeck share is a 43.6% premium to its 90-day volume weight average price and a 90.4% premium based on the closing price of $0.73 per OnDeck share on July 27, 2020.

Enova has provided nearly 7 million customers around the globe with access to more than $20 billion in loans and financing. And the financial technology company has a portfolio of brands serving consumers, including CashNetUSA, NetCredit and Simplic; two brands serving small businesses, Headway Capital and The Business Backer; and offers online lending platform services to lenders. Through the Enova Decisions brand, it also delivers on-demand decision-making technology and real-time predictive analytics services to clients.

Founded in 2006, OnDeck pioneered the use of data analytics and digital technology to make real-time lending decisions and deliver capital rapidly to small businesses online. Now OnDeck offers a wide range of term loans and lines of credit customized for the needs of small business owners. The company also offers bank clients a comprehensive technology and services platform that facilitates online lending to small business customers through ODX, a wholly owned subsidiary. Plus OnDeck has provided over $13 billion in loans to customers in 700 different industries across the United States, Canada, and Australia.

This deal brings together two complementary market-leading businesses that are combining world-class capabilities in consumer and small business online lending. Both Enova and OnDeck are innovators that have helped transform online lending using data and advanced analytics to simplify and expand access to financial services for underserved borrowers while also providing an unparalleled customer experience.

Enova is going to add the OnDeck brand, products, and services to its existing industry-leading portfolio in order to create a combined company with significant scale and diverse product offerings in consumer and small business market segments that banks and credit unions have difficulty serving.

Enova and OnDeck had $4.7 billion in originations in 2019 and have served approximately 7 million customers altogether.

The combined company will have a portfolio of leading brands and products with the scale and resources to invest in and drive innovation. And both companies are known for their data and advanced analytics, having created highly predictive, proprietary credit scoring systems for their respective markets.

Going forward, Enova and OnDeck will be well-positioned to further support small businesses and consumers in the wake of the COVID-19 pandemic. And both companies are focused on empowering the growth and success of small businesses by providing access to efficient and transparent capital and helping hardworking people get access to fast, trustworthy credit.

The combination will create a leading online financial services company with increased scale, more diversified revenues, stronger cash flow potential, and increased flexibility for driving growth, profitability, and shareholder value.

This transaction is anticipated by Enova to result in about $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.

And the transaction is expected to be accretive in the first year post-closing and will generate earnings per share accretion of over 40% when synergies are fully recognized. The shareholders of both companies will further benefit from the opportunity for long-term growth and upside through ownership in a stronger and more dynamic combined company.

As of March 31, 2020, on a pro forma basis the companies had combined gross receivables of $2.4 billion — 61% of which were small business assets and 39% consumer assets. And for the year ended December 31, 2019, on a pro forma basis including synergies, Enova and OnDeck had estimated combined gross revenue of $1.65 billion, adjusted EBITDA of $427 million and adjusted earnings of $215 million.

KEY QUOTES:

“This strategic transaction, which brings together two FinTech leaders, is a great opportunity for customers, employees, and shareholders of both companies. Together, our companies will be stronger because of the complementary strengths and synergies of our businesses. Acquiring a premier online small business lender and its ODX bank platform, and welcoming its innovative and talented team to Enova, will increase our scale and resources, providing us with opportunities to accelerate growth in our increasingly diversified portfolio as we continue to execute on our strategy to create long-term value for all of our stakeholders.”

— David Fisher, CEO of Enova

“I am proud of the business we have built and the more than $13 billion of financing we have provided to underserved small businesses since our founding in 2006. Following an extensive review of our strategic options, we believe this is the right path forward for our customers, employees and shareholders. Joining forces with Enova, a highly-respected and well-capitalized leader in online lending, and leveraging our combined scale and strengths, provides the best opportunity for our long-term success.”

— Noah Breslow, OnDeck Chairman and CEO

BOARD AND MANAGEMENT TEAM

David Fisher will continue to lead the combined company. And Noah Breslow will join the company as Vice Chairman and serve on the Enova management team.