Fox To Acquire Majority Credible Labs Stake For Fintech Marketplace

Summary

• Fox Corporation has agreed to acquire a majority of Credible Labs for $265 million plus an additional investment commitment over two years.
• Credible has developed an online marketplace matching lenders and consumer borrowers.
• With the transaction, Fox sees synergies between Credible and its Fox Business and Television Stations units as it charts a new course.
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Quick Take

Fox (NASDAQ:FOXA) announced it has agreed to acquire a controlling interest in Credible Labs for $265 million.

Credible Labs operates an online multi-lender financial services marketplace.

With the deal, FOXA hopes to combine Credible with its Fox Business and Television Station assets and leverage those audiences for Credible’s fintech marketplace.

Target Company

San Francisco, California-based Credible was founded in 2012 to develop an online multi-lender marketplace that allows borrowers to receive competitive loan offers from lenders.

Management is headed by Founder and CEO Stephen Dash, who was previously Investment Director at M.H. Carnegie & Co.

Below is an overview video of how Credible works:

Source: Credible

Investors have invested at least $25.3 million in the company and include Ron Suber, Carthona Capital, Regal Funds Management, AMTD Group, Scott Langmack, Soul Htite, Cthulhu Ventures, and Redbus Group among others. Source: Crunchbase

Market & Competition

According to a market research report by TransUnion, in 2018, the unsecured personal loan market reached an all-time-high of $138 billion, marking a year-over-year [yoy] growth of 17%.

During the same year, fintech companies made up about 38% of the personal loans market.

In contrast, traditional banks’ and credit unions’ shares accounted for 28% and 21% of the market in 2018, representing a drop from 40% and 31% in 2013, respectively, as illustrated by the chart below:

Source: TransUnion

Major fintech firms that provide personal loans include:

• Lendio

• LendKey

• Upstart Network

• Nav

Source: Sentieo

Acquisition Terms and Financial

Fox disclosed the acquisition price and terms as an acquisition of 67% of the Credible Labs equity for $265 million in cash to Credible’s shareholders.

Additionally, Fox committed to invest ‘up to $USD 75 million of growth capital to Credible over approximately two years.’

A review of the firm’s most recent 10-K filing indicates that as of June 30, 2019, Fox had $3.2 billion in cash and equivalents and $9.6 billion in liabilities, of which borrowings totaled $6.8 billion.

Free cash flow for the twelve months ended June 30, 2019, was $2.3 billion.

Since the stock began trading in mid-March as a result of the spin-off from the sale of its film and TV assets to Disney, the price has dropped about 20%, as the chart below indicates:

Source: Simply Wall Street

Commentary

Fox is acquiring Credible to integrate it into its Fox Business and Fox Television Stations business segments.

As Fox CEO Lachlan Murdoch stated in the deal announcement,

Credible, which has tremendous synergy with core brands such as Fox Business and Fox Television Stations and will benefit from our audience reach and scale, will drive strategic growth, further develop our brand verticals and deepen consumer relationships.

Beyond that generality, Fox didn’t provide any meaningful details about how the deal would be synergistic.

One must assume that Fox wants to reach deeper beyond simply being a media firm and become a direct provider of marketplace services, in this case, financial services.

It is notable that the new Fox’ (post-Disney acquisition of its film & TV assets) first significant foray is in acquiring an Internet fintech marketplace company.

Fox wants to combine it with its existing media properties to leverage its existing audience into this fintech marketplace.

While the deal won’t immediately move the stock price needle for FOXA, it provides investors with a directional signal about Murdoch’s intentions for the future with the new slimmed-down Fox.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.