Technology Jan 08

SoFi $8.65-billion deal could kickstart fintech SPAC flow

US online lender SoFi is going public via a $8.65-billion SPAC deal; further fintech flow could follow, including in Asia

SoFi $8.65-billion deal could kickstart fintech SPAC flow
Chamath Palihapitiya, Founder and CEO of Social Capital, speaks at the 2018 Sohn Investment Conference in New York City in April 2018. Palihapitiya has created a string of SPACs. File photo by Brendan McDermid/Reuters.

(ATF) US online lender SoFI is going public via a merger with a special purpose acquisition company (SPAC) in a deal that values the fintech firm at $8.65 billion. The hefty price tag could encourage other SPAC deals in the fintech space, where Asian firms are market leaders.

SoFi has seen sharp growth since its launch in 2011 as an online lender that initially focused on student loans before expanding into mortgages and personal loans for affluent young customers.

The San Francisco-based company marketed its services aggressively under co-founder and first chief executive Mike Cagney, a former Wells Fargo banker who branded its clients as SoFi ‘members’ and promoted loans with hospitality events for youthful potential borrowers.

Cagney was forced out of the firm in 2017 after sexual harassment and risk management scandals and replaced by former Goldman Sachs banker - and one-time Twitter CFO - Anthony Noto.

The $8.65-billion SPAC deal announced on Thursday January 7 was hailed by Noto as a vindication of SoFi’s business model.

“Our ecosystem of products, rewards and membership benefits all work together to help our members get their money right. With the secular acceleration in digital-first financial services offerings, SoFi is the only company providing a comprehensive solution all in one app. The new investments and our partnership with Social Capital Hedosophia signify the confidence in our strategy, the momentum in our business, as well as the significant growth opportunity ahead of us,” Noto said in a statement.

The acquiring vehicle Social Capital Hedosophia V is one of a string of SPACs created by Chamath Palihapitiya. He joined Noto in promoting the appeal of the fintech.

“SoFi’s innovative, member-first platform has demystified financial services for millions of Americans and simplified the process for those looking to apply for loans, invest their money, obtain insurance and refinance their debt, among many other tasks that were previously arcane and needlessly complicated. Additionally, the acceleration of cross-buying by existing SoFi members has created a virtuous cycle of compounding growth, diversified revenue and high profitability” Palihapitiya said.

'Working with regulators'

SoFi has always positioned itself as a firm that should appeal to regulators who are keen to improve access to financing and last October it received preliminary approval from the Office of the Comptroller of the Currency for a national bank charter in the US.

This approach of trying to work with regulators - rather than simply disrupting existing financial relationships - could prove crucial to fintech firms that want to build scale by accessing public capital markets.

The business model is not confined to lending. Coinbase, the biggest US crypto-currency exchange, is aiming to launch an IPO this year after seeking to allay regulatory concerns about its activity, for example. Today's move in bitcoin above $40,000 briefly will increase appetite for a potential IPO, which is expected to be brought by Goldman Sachs if a prospectus by Coinbase passes investor scrutiny.

SoFi’s SPAC deal gives the company an equity value of $8.65 billion and is expected to provide up to $2.4 billion in cash proceeds, including a fully committed private investment in public equity (PIPE) of $1.2 billion, and up to $805 million of cash held in the trust account of Social Capital Hedosophia V. Some $150 million of the proceeds will be used to help SoFi win regulatory approval for a bank charter.

The PIPE is led by Palihapitiya and the SPAC which are together contributing $275 million. Institutional investors that will put in the remaining $950 million include BlackRock, Altimeter Capital Management, Baron Capital Group, Coatue Management, Durable Capital Partners, and Healthcare of Ontario Pension Plan.

Credit Suisse was main adviser on the deal, with Citi and Goldman also involved.

Asia-focused SPAC deal volume is expected to be brisk this year, as a series of vehicles have been created and there are many potential targets with the technology focus that has a particular appeal - including fintech firms who have enjoyed greater take-up in Asia than in other regions.

Today’s $8.65 billion valuation for the SoFi SPAC deal indicates that substantial fintech trades can be put together to provide public market access for new types of financial services firms, despite ongoing regulatory challenges.

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United States SPAC deal SoFi Online lender fintech asia Anthony Noto Mike Cagney Chamath Palihapitiya Social Capital Hedosophia V Goldman Sachs Coinbase BlackRock