If Kabbage Wanted to Buy, Would OnDeck Sell?
March 24, 2017
A single line in a Reuters story was enough to cause OnDeck’s stock to jump by as much as 11% on Thursday. Industry blogs and news outlets had reacted pretty quickly to word of an unnamed source claiming that OnDeck is a potential acquisition target if Kabbage raises a new equity round. OnDeck closed for the day up only 6.5%.
BloombergGadfly columnist Gillian Tan, wrote that a deal was not very likely because of how much investors are already down since the IPO. “Assuming Kabbage were to propose a traditional takeover at a standard premium, it probably would be swiftly rejected by On Deck’s earliest investors, who still own a combined stake of more than 45 percent, according to data compiled by Bloomberg,” she wrote. “With the stock trading at less than a quarter of its 2014 initial public offering price, it would take a generous premium to get them interested.”
OnDeck also lent nearly twice as much as Kabbage last year and obviously still has faith in leadership considering that their pre-IPO CEO is still in charge. There’s little to suggest at this time that OnDeck would be willing to throw in the towel and sell out to a smaller, younger competitor and book a big loss for shareholders who have been with them since the beginning.
The day before the rumor started, OnDeck actually announced that it had increased its asset-backed revolving credit facility with Deutsche Bank by approximately $52 million to a total of up to approximately $214 million.
Citing Unnamed Sources, Reuters Reports Kabbage Possibly Looking to Acquire OnDeck
March 23, 2017
Reuters is reporting that Kabbage is in talks to raise equity capital to potentially use for acquisitions and that OnDeck is one of several targets under consideration. As Reuters attributed the OnDeck portion to just one of their multiple unnamed sources, it’s entirely speculative at this point.
From a theoretical perspective, would such a thing make sense?
Kabbage has momentum on their side right now. Their recent half billion dollar securitization that was finalized earlier this month was oversubscribed. Although they only originated about half the loan volume of OnDeck last year, Kabbage’s last private market valuation ($1 billion in Oct 2015) is nearly 3x as large as OnDeck’s current market cap.
Valuations in the industry have changed a lot over the last 18 months but there’s no doubt that Kabbage has become a unique competitor. At LendIt, company CEO Rob Frohwein revealed a bit of their secret sauce when he said that their customers borrow from them on average 20-25 times over the course of 4 years, whereas their competitors make only 2.2 loans to their customers on average.
There is a general view in this industry that acquiring a competitor adds little value other than more marketshare. Kabbage, however, may potentially believe that (1) OnDeck is too undervalued to pass up (2) That OnDeck could generate better margins using Kabbage’s strategy (3) That OnDeck’s partner relationships would add additional value (4) That the company cultures are compatible enough to make an acquisition work (5) that the combined entity would allow them to better align their political and regulatory agendas.
We mustn’t forget however that a single unnamed source is pretty weak to go off of. One possible reason that someone would want to report that OnDeck is an acquisition target is to cause a temporary spike in their stock price. (and I certainly do not have any position in the stock)
For now, it’s fun to think about such an acquisition scenario and we’ll report more, if and when we hear anything.
OnDeck CEO Noah Breslow Talked Tech Worker Shortage in Canada on BloombergTV
March 22, 2017On BloobergTV Canada, OnDeck CEO Noah Breslow explained what he thought the country could do to boost innovation. The discussion stemmed from Canada’s decision to set aside C$800 million over the next four years to carry out that objective.
Breslow said that since Canada has excellent schools, those graduates can be nurtured into forming businesses and creating business investment opportunities. He also said that vocational training towards today’s new working-style job would be beneficial as well, whether it’s jobs for people who can design the latest algorithm or people who can build systems and data centers or can rack servers together.
When asked if perhaps government intervention was not the answer to achieve this, Breslow said that there are two ends of that spectrum, and where he believed intervention could be helpful was in the formation and talent development and formation incubation stage of companies. For later-stage companies, it was probably not appropriate, he said.
Breslow also expressed his belief that a permissive immigration policy is important and that there should be less friction to bring in skilled workers to Canada.
You can watch the full video below to hear the rest:
Layoffs, Big Losses for OnDeck in Q4
February 16, 2017OnDeck weathered a brutal fourth quarter driven largely by an increase in provision for loan losses which increased to $55.7 million, up from $20.0 million in the comparable prior year period. $18.7 million of this can be attributed to loans with original maturities of 15 months or longer whose performance has deviated or is expected to deviate, the company said. “As a result, the Provision Rate in the fourth quarter of 2016 was 10.2% compared to 5.6% in the comparable prior year period,” the company reported. For the full year of 2016, the Provision Rate was 7.4%, compared to 5.8% in 2015. CFO Howard Katzenberg said on the earnings call that it will likely continue to hover at around the 7% level.
The company lost $36.5 million in Q4 and $86.5 million for the year.
To try and turn things around, OnDeck is laying off up to 11% of their staff as part of a “cost rationalization plan.”
James Hobson, their COO, recently announced his resignation and March 15th is his last official day.
On the earnings call, Katzenberg wouldn’t say how many loans in their portfolio were 15 months or longer, but did say that it’s more than a third of their book. This is notable given that this segment is the one in which performance isn’t matching their models and led to the recalibration of loss expectations.
Meanwhile CEO Noah Breslow explained that losses did not stem from their partnership with Chase since Chase held all those loans on their own balance sheet. Breslow said their role in that relationship is servicing.
No origination channel was directly responsible for the loss provision increase. One analyst surmised if perhaps third party brokers or funding advisors, as OnDeck calls them, might be responsible, but the company said that origination channel wasn’t a factor.
Despite the fact that OnDeck is now using the 5th generation of their proprietary OnDeck Score, they were unable to predict performance on loans that now make up more than a third of their portfolio, yet the company said they remain very confident in their scoring model.
“Loans sold or designated as held for sale through OnDeck Marketplace represented 15.8% of term loan originations in the fourth quarter of 2016 compared to 39.8% of term loan originations in the comparable prior year period,” the company reported.
OnDeck’s COO Announces Resignation Prior to Q4 Earnings
February 3, 2017OnDeck COO James Hobson notified the company on Friday that he is resigning to “pursue another opportunity.” According to the 8-K filed with the SEC, it will become effective on March 15, 2017.
Hobson started at OnDeck in 2011 and became the COO in 2012.
The announcement comes weeks before OnDeck is expected to disclose their Q4 and full-year 2016 report. In Q3, the company had shifted to keeping more loans on their own balance sheet, while increasing their reliance on third party brokers for business. They had also reported a GAAP net loss of $16.6 million for the quarter, bringing the 2016 Q1 – Q3 total losses to $47.1 million.
WEX and OnDeck Announce Strategic Partnership to Offer Financing to WEX Small Business Customers
January 17, 2017
SOUTH PORTLAND, Maine–(BUSINESS WIRE)–WEX Inc. (NYSE: WEX), a leading provider of corporate and small business payment solutions, and OnDeck® (NYSE: ONDK), a leader in online lending for small business, announced a partnership in which WEX will offer business financing from OnDeck to its small business customers.
WEX is a global, multi-channel provider of corporate payment solutions representing more than 10 million vehicles and offering exceptional payment security and control across a wide spectrum of business sectors. The company and its subsidiaries employ more than 2,500 associates who provide services in the Americas, Europe, Australia, and Asia.
“Our partnership with OnDeck will be a huge benefit to our small to mid-sized business customers who will now have access to new sources of financing,” said Brian Fournier, vice president, fleet channel partner, WEX. “The strategic partnership will enable these customers to take advantage of OnDeck’s leading portfolio of products and services.”
“OnDeck is 100 percent focused on helping small businesses seize opportunities, such as hiring employees, funding marketing, or buying inventory,” said Jerome Hersey, vice president, OnDeck. “Our partnership with WEX, an innovator in the payments marketplace, will enable us to offer more small businesses an unparalleled set of choices to meet their financing needs.”
For more information about WEX’s small business offerings, please visit: http://www.wexinc.com/fleet/small-business/.
About WEX Inc.
WEX Inc. (NYSE: WEX) is a leading provider of corporate payment solutions. From its roots in fleet card payments beginning in 1983, WEX has expanded the scope of its business into a multi-channel provider of corporate payment solutions representing approximately 10 million vehicles and offering exceptional payment security and control across a wide spectrum of business sectors. WEX serves a global set of customers and partners through its operations around the world, with offices in the United States, Australia, New Zealand, Brazil, the United Kingdom, Italy, France, Germany, Norway and Singapore. WEX and its subsidiaries employ more than 2,500 associates. The company has been publicly traded since 2005, and is listed on the New York Stock Exchange under the ticker symbol “WEX.” For more information, visit www.wexinc.com and follow WEX on Twitter at @WEXIncNews.
About OnDeck
OnDeck (NYSE: ONDK) is the leader in online small business lending. Since 2007, the Company has powered Main Street’s growth through advanced lending technology and a constant dedication to customer service. OnDeck’s proprietary credit scoring system – the OnDeck Score® – leverages advanced analytics, enabling OnDeck to make real-time lending decisions and deliver capital to small businesses in as little as 24 hours. OnDeck offers business owners a complete financing solution, including the online lending industry’s widest range of term loans and lines of credit. To date, the Company has deployed over $5 billion to more than 60,000 customers in 700 different industries across the United States, Canada and Australia. OnDeck has an A+ rating with the Better Business Bureau and operates the educational small business financing website www.businessloans.com.
OnDeck, the OnDeck logo, OnDeck Score and OnDeck Marketplace are trademarks of On Deck Capital, Inc.
Contacts
WEX
Rob Gould, 207-523-7429
robert.gould@wexinc.com
or
OnDeck
Jim Larkin, 203-526-7457
jlarkin@ondeck.com
Update: Stitt v OnDeck Class Action Dismissed
December 12, 2016
In case you missed it, the class action lawsuit filed in August 2015 by small retail investor Carl Stitt against OnDeck, its officers and underwriting banks for violating securities laws, was dismissed in late September of this year. Stitt withdrew his suit without prejudice as to all parties, including another investor, Isaac Malafsky, whose own class action suit was eventually consolidated into Stitt’s.
The case never gained any traction. Once the two suits were consolidated, OnDeck filed a motion to dismiss on multiple grounds, while pointing out that part of the complaint’s argument for a supposedly undisclosed negative trend came from a blog post on SeekingAlpha whose author had a short position in OnDeck’s stock. AltFinanceDaily reported this on August 7th, 2015, when it was determined that the author was not just any short seller, but a company owned by Hunter Adams, who notoriously served time in prison for his role in a previous stock manipulation scheme.
Once the judge asked the parties to present oral arguments on the motion, the plaintiffs withdrew instead.
OnDeck traded at $10.47 on the day Stitt’s case was filed last year. It closed at $4.30 on December 9th, 2016, down by more than 50% since then.
OnDeck Announces New $200 Million Revolving Credit Facility with Credit Suisse
December 9, 2016
NEW YORK, Dec. 9, 2016 /PRNewswire/ — OnDeck® (NYSE: ONDK), the leader in online lending for small business, announced today the closing of a $200 million asset-backed revolving debt facility with Credit Suisse.
In addition to its other funding sources, OnDeck may now obtain funding under the new credit facility with Credit Suisse, subject to customary borrowing conditions, by accessing $125 million of committed capacity and an additional $75 million of capacity available at the discretion of the lenders.
“OnDeck has emerged as a leading provider of growth capital to small businesses around the country,” said Jon-Claude Zucconi, Managing Director, Credit Suisse. “The team’s innovative vision and commitment to financing is vital to expansion and growth in the small business community.”
Under the facility, loans will be made to Prime OnDeck Receivable Trust II, LLC, or PORT II, a wholly-owned subsidiary of OnDeck, to finance PORT II’s purchase of small business loans from OnDeck. The revolving pool of small business loans purchased by PORT II serves as collateral under the facility. OnDeck is acting as the servicer for such small business loans. The Class A Loans under the facility were rated by DBRS, Inc.
OnDeck intends to initially use a portion of this facility, together with other available funds, to optionally prepay in full without penalty or premium, the existing $100 million Prime OnDeck Receivable Trust, LLC facility which was scheduled to expire in June 2017. As a result, OnDeck will benefit from obtaining additional funding capacity through December 2018.
“This transaction marks a continuation of our financing strategy to diversify funding sources, extend debt maturities, and create additional funding capacity to pave the way for future loan growth,” said Howard Katzenberg, Chief Financial Officer, OnDeck. “We are pleased to have Credit Suisse, a leading global financial institution, support OnDeck in our mission to power the growth of small business through lending technology and innovation.”
About OnDeck
OnDeck (NYSE: ONDK) is the leader in online small business lending. Since 2007, the company has powered Main Street’s growth through advanced lending technology and a constant dedication to customer service. OnDeck’s proprietary credit scoring system – the OnDeck Score® – leverages advanced analytics, enabling OnDeck to make real-time lending decisions and deliver capital to small businesses in as little as 24 hours. OnDeck offers business owners a complete financing solution, including the online lending industry’s widest range of term loans and lines of credit. To date, the company has deployed over $5 billion to more than 60,000 customers in 700 different industries across the United States, Canada, and Australia. OnDeck has an A+ rating with the Better Business Bureau and operates the educational small business financing website BusinessLoans.com.
For more information, please visit www.ondeck.com.
About Credit Ratings
Credit ratings are opinions of the relevant rating agency. They are not facts and are not opinions of OnDeck. They are not recommendations to purchase, sell or hold any securities and can be changed or withdrawn at any time.
Safe Harbor Statement
This press release contains “forward-looking statements” within the meaning of the private Securities Litigation Reform Act of 1995 and other legal authority. Forward-looking statements include statements about the intended use of proceeds from the new facility and expected optional repayment in full of the existing facility, the extension of debt maturities and the availability of additional funding capacity, all of which are dependent upon compliance with the borrowing and other conditions of the new facility, as well as information concerning OnDeck’s business plans and objectives and financing plans including future loan growth. Forward-looking statements can also be identified by words such as “will,” “enables,” “expects”, “may,” “allows,” “continues,” “believes,” “intends,” “anticipates,” “estimates” or similar expressions. Forward-looking statements are neither historical facts nor assurances of future performance. They are based only on OnDeck’s current beliefs, expectations and assumptions regarding the future of its business, anticipated events and trends, the economy and other future conditions. Moreover, OnDeck does not assume responsibility for the accuracy and completeness of forward-looking statements. As such, they are subject to inherent uncertainties, changes in circumstances, known and unknown risks and other factors that are difficult to predict and in many cases outside OnDeck’s control.
As a result, you should not rely on any forward-looking statements. OnDeck’s expected results may not be achieved, and actual results may differ materially from OnDeck’s expectations. Important factors that could cause actual results to differ from OnDeck’s forward-looking statements are the risks that OnDeck may not be able to manage its anticipated or actual growth effectively, that its credit models do not adequately identify potential risks, and other risks, including those under the heading “Risk Factors” in OnDeck’s Annual Report on Form 10-K for the year ended December 31, 2015, Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 and in other documents that OnDeck files with the Securities and Exchange Commission, or SEC, from time to time which are available on the SEC website at www.sec.gov. OnDeck undertakes no obligation to publicly update any forward-looking statements for any reason after the date of this press release to conform these statements to actual results or to changes in OnDeck’s expectations, except as required by law.
OnDeck, the OnDeck logo and OnDeck Score are trademarks of On Deck Capital, Inc.
Logo – http://photos.prnewswire.com/prnh/20150812/257781LOGO
SOURCE On Deck Capital, Inc.
