A San Francisco investment group plans to invest $ 520 million in Open Lending Inc. this year and go public with the Austin, Texas company started 20 years ago to help credit unions grant secure and affordable auto loans to near-prime borrowers.
A firm formed by True Wind Capital Partners, a San Francisco-based private equity firm, will acquire Open Lending in the deal valued at approximately $ 1.3 billion. True Wind investors will acquire around 35-40% of the new company, with the current owners retaining the majority of the capital.
John Flynn, co-founder of Open loan and its chairman / chief executive, said on Wednesday that he would continue to lead the company as chairman / chief executive after the close, expected by mid-June.
“John and his team have developed a highly scalable technology platform that helps hard-working consumers buy a new or used car at the best possible price,” said Adam Clammer, one of the founding partners of True Wind .
True Wind plans to retain leadership of Open Lending, and Flynn said he expects its 85 employees to surpass 100 before the end of the year. Flynn, 64, said he also plans to stay.
“I’m going to stay as long as it’s fun,” Flynn said. “We created something that served underserved members, and it was fun building it.”
More than 275 lenders used the Open Lending platform last year to secure more than $ 1.7 billion in auto loans. Open Lending expects its profit margins before interest, taxes, depreciation and amortization (EBITDA) to exceed 50% and organic revenue growth to reach 80% this year, representing more than 140,000 loan facilities.
Open Lending offers loan analytics, risk-based pricing, risk modeling, automated decision technology, and default insurance through third party insurers. The OpenLending.com platform was designed for credit unions, but recently started offering its services to private lenders, including two captive lenders from a domestic manufacturer and a foreign manufacturer.
“We believe there is important avenue for new growth opportunities within our existing base of credit unions and banks as well as through untapped opportunities such as captive OEM partnerships,” said Flynn.
As part of the transaction, Nebula Acquisition Corp. (NASDAQ: NEBU), a public company previously formed by True Wind, will acquire Open Lending Inc. and change its name from Nebula to Open Lending Corp, and change its ticker symbol on the Nasdaq.
The transaction reflects an estimated closing implied enterprise value of $ 1.3 billion, which is a multiple of 12.2 times expected 2020 EBITDA of $ 109 million.
“Open Lending’s ability to demonstrate consistent organic growth and high levels of profitability represents an exciting investment opportunity within the risk-based analytics ecosystem,” said Clammer.
Flynn began his professional life as a cashier in 1977 at the Congressional Federal Credit Union. He was President and CEO of the Washington Gas Light Federal Credit Union (now TruEnergy) from 1985 to 1994, when it had $ 41.2 million in assets and 6,274 members. After he left, he started a business that provided asset and liability management for credit unions.
In 2000, Flynn, Sandy Watkins and Ross Jessup founded Open Lending. It specializes in blue chip auto loans, which Experian said accounted for 20% of borrowers in the third quarter of 2019.
The Open Lending system is designed to allow borrowers close to the prime “to finance their vehicles at more attractive rates compared to traditional lending alternatives, while presenting a risk profile for the lender similar to that of a prime borrower ”.
The genesis of the Jan. 5 deal was a minority investment made in 2015 by Bregal Sagemount, a private equity firm that targets fast-growing companies, Flynn said.
After three years, when such an investor comes out normally, he decided to stay and Open Lending was approached by other potential investors.
“We have grown so rapidly and been very successful in the credit union space,” he said. “Everyone wants to give you money when you don’t need it.”
After Open Lending explored its alternatives, it switched to True Wind, which invests exclusively in technology companies.