Michael Garrity had high hopes when investment banking giant Goldman Sachs Group Inc. GS-N bought his Canadian online consumer finance company, Financeit Inc., in 2017. Goldman was taking a big step in l US consumer finance space and it was “certainly part of our thinking at the time as a management team that there would probably be an opportunity to work with them,” Garrity said.
This does not happen. On Friday, Financeit announced that Goldman had sold the 250-person Toronto-based company to a unit of Wafra, Kuwait’s sovereign wealth fund. Although terms were not disclosed, an industry source said the deal was likely valued at between $350 million and $500 million. The Globe and Mail does not identify the source as they are not authorized to discuss the matter.
Mr. Garrity launched Financeit’s predecessor in 2007 as a peer-to-peer lending service, shifting the business towards point-of-sale financing in 2011. Financeit has provided merchants in the home improvement, automotive and retailing the consumer finance products they could offer their customers. customers, promising greater transparency by removing hidden fees and extending loans through its online platform.
Financeit now offers products that are alternatives to home equity lines of credit and are available online to Canadian Home Depot customers for amounts up to $50,000 for six months. Mr. Garrity said the company had grown 30% per year for the past five years and processed more than 115,000 loan applications in 2021, funding $535 million in loans in Canada. Financeit’s loan products, underwritten with $1.5 billion from Royal Bank of Canada, Sun Life Financial Inc., Concentra Bank and VersaBank, are also offered by home service providers such as HVAC repair operations so their customers can spread out bill payments, typically paying one-time — single-digit interest rates, Garrity said.
It makes Financeit, which generated between $80 million and $100 million in revenue last year, both a partner and a rival to banks that compete in consumer lending with popular financiers who buy now and pay more. late. These newcomers mediate between merchant and customer at the point of sale with installment payment options, often at lower rates than credit cards which are a major source of revenue for issuers. In response, several banks, including RBC, have launched their own installment payment programs. But most major lenders have yet to fully embrace the trend, aware that point-of-sale financing could face regulatory scrutiny.
Goldman took a minority stake in Financeit in 2015, then bought control in 2017 with an undisclosed investment larger than the $50 million the startup had previously raised. Financeit has purchased Centah Inc., a provider of customer relationship management software for the home improvement industry.
Financeit hoped to break into the US market and saw Goldman as a potential partner. From 2016, Goldman moved into consumer banking in search of new revenue streams, a major departure for a company known as a trader and investment banker for institutions and high net worth clients. Its consumer digital bank Marcus, named after its founder Marcus Goldman, now has nine million customers and is one of the largest “neobanks” in the United States.
But there was no overlap between Financeit’s Canadian operations and those of the US-focused Marcus. Additionally, Financeit was owned by Goldman Sachs Asset Management (GSAM), a separate unit of Goldman’s consumer banking group, meaning the Toronto-based company wouldn’t necessarily get preferential treatment in its efforts to combine forces. “While we always knew we had people in the tower we could talk to, we had to have an independent conversation with them about any opportunity to work together,” Garrity said.
Marcus focused on a partnership with Apple Inc. to provide digital credit cards to the smartphone giant’s users and Financeit scrapped U.S. expansion plans for its consumer credit business at the start of the pandemic. Then last year Goldman bought US online consumer financier GreenSky Inc. for $2.2 billion. When asked to what extent Financeit had pursued a business relationship with Goldman, Mr. Garrity replied: “The fact that they bought GreenSky answers the question. By aspiration, we would have loved to do something with Marcus in the United States. It just didn’t happen.
Mr. Garrity emphasized that there were no hard feelings. “Our relationship with the Goldman team has been great and it has served its purpose: it was an investment that was meant to help us and it ended up prospering for them. It did both,” he said “The Goldman group that invested in us invested to make money and, congratulations, they did.”
GSAM’s managing director of private equity, Anthony Arnold, said in a statement: “Under our ownership, [Financeit] dramatically increased its size, institutionalized its lending platform, diversified its funding sources, and increased its home improvement product and service capabilities. We are delighted that they have found a new partner to accompany them. A Goldman spokesperson declined to comment further.
Mr Garrity said the buyer, Wafra’s Capital Partners unit, would help it grow because [Wafra] generally allows holding companies “to use its balance sheet in addition to equity investments. It’s an exciting part of the partnership. We will be looking at all kinds of new lending models to facilitate our growth, as we have an expert to understand how to support a consumer lending business like ours. »
Michael Gontar, Chief Investment Officer of Wafra Capital Partners, said in a statement: “We are confident that our capital and our strategic vision will further scale the progress already underway, allowing Financeit to reach an ambitious new milestone in the coming years. future.
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