Will Blue Motor Finance’s Potential Sale Attract Investors?

  • Mar 28, 2019 GMT
  • Team Kalkine
Will Blue Motor Finance’s Potential Sale Attract Investors?

Blue Motor Finance, one of the UK's leading Fintech companies, is looking for potential buyers who could see the company taken over by an established lender larger or private equity group. The company was launched five years ago and has expanded in a short span; revenues hit £52.3m in 2017, from just £102,000 in 2014. In the FT1000 Europe's Fastest Growing Companies, the company was ranked 1st, reflecting the remarkable growth shown by the company.

The Sundridge, United Kingdom-headquartered company operates as a motor finance company and offers loans for buying vehicles. The company's chief operating officer, Bob Jones, has worked in the sector for almost 50 years. According to Chris Jones, Blue's chief operating officer, boasts that the company uses sophisticated analytics to make quick and risk-graded loans, which also helps to remove fiction. He believes that the market has been dominated by the banks for a long time and sees a vast potential in the motor finance market which is worth more than £100 billion.

While management holds a small stake, the company is backed by Cabot Square, a private equity firm. The firm is a UK-based specialist financial services investor. Tarun Sharma, a partner at Cabot Square, says that since 2014, when it invested £37.5m in the venture, the company has performed better than expectations. Since its inception, it has lent around £1bn since 2014 to more than 100,000 customers and expects to increase the amount by more than 50% in 2019 alone.

The owners of the company are now discussing a potential sale with investment bankers. Although the rapid expansion of loan book might lead to questions about the health prospects, it must be noted that the company's expansion took place at a time when consumer lending businesses were growing, and default levels were pushed to a record low due to low-interest rates. However, the business environment has become more uncertain now, with more rise in defaults expected. Mr Sharma insists the potential sale is not driven by an intention to cash in before the going gets rough, and believes the company has a vast potential to grow which will need significantly more capital.

On 11th August 2018, the company completed its first auto loan securitisation with a pool balance of £365 million. The company expects to issue ABS in the future regularly. Though analysts cautioned that it had a higher risk than a typical UK auto deal, Bob Jones said investor demand was high and described it as "another milestone" and saw it as a "big vote of confidence". According to Mr Sharma, the company's technology can help a potential buyer to grow in areas beyond motor finance.

In 2017, the company reported strong revenue and profit growth – pre-tax profits were £7 million. Yet, the company has not attracted attractive valuations. Though any sale is not expected to value Blue above the $1 billion-mark, Bob Jones compares his company to peer-to-peer lender Funding Circle, which has a market value of £1.4 billion despite not turning a profit. He also expects Blue to get to that level, having lent more than the $1 billion.

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