Current State of Affairs
Small business lender Kabbage announced earlier this month that it would begin selling over $525 million worth of loans to investors, which will in turn increase its lending capacity to over $2.7 billion.
In contrast, Kabbage’s competitor OnDeck, has seen its share price steadily drop since its IPO in 2012 (down close to 80%). And while OnDeck has been able to increase its borrowing capacity by $52 million recently, its Q4 earnings report showing a record loss indicates that things are not looking up.
Kabbage is growing while OnDeck seems to be on a downward trend, and given last years negative analysis of the online lending marketplace, it makes some sense that Kabbage will soon make an offer to buyout OnDeck.
So will Kabbage attempt to buy out OnDeck? Maybe, but the more important question is whether OnDeck will agree to it and at what terms.
Standard vs Reverse Merger
Bloomberg columnist Gillian Tan thinks that OnDeck most likely won’t agree to a standard buyout based on the fact that OnDeck’s earliest investors still own 45% of the company. Given its share price is currently trading at a fraction of its IPO, those investors will likely want a large premium on any offer by Kabbage.
A reverse merger is also very unlikely since Kabbage can’t offer very much cash or equity as a private company to OnDeck’s shareholders.
What Will Happen?
OnDeck did see a slight uptick in its shares last week when speculation of a buyout was first reported on and the recent hiring of former Morgan Stanley COO Jim Rosenthal to its board of directors might be a sign that things will improve. Whether or not Kabbage makes an offer and whether OnDeck accepts remains to be seen.