IPO Report: loanDepot (LDI)

Francis Gaskins |

UPDATE: loanDepot halted its plans to IPO Thursday citing the "market conditions".

loanDepot (LDI) is a leading technology-enabled U.S. consumer lending platform. LDI launched its business in 2010 to provide credit solutions to consumers who were not satisfied with the service offered by banks and other traditional market participants. The company is based in Foothill Ranch, California.

Five other companies are scheduled for the week of Nov 9. The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint-managers: Morgan Stanley, Goldman Sachs, Wells Fargo Securities, Barclays/ UBS Investment Bank
Co-managers: BMO Capital Markets, JMP Securities, Raymond James, William Blair

End of lockup (180 days): Wednesday, May 11, 2016
End of 25-day quiet period: Tuesday, December 8, 2015

LDI scheduled a $510 million IPO with a market capitalization of $2.5 billion (fully diluted) at a price range midpoint of $17 for Friday, Nov. 13 2015 on NYSE.  Update:  needs to price much lower, may in fact be cancelled.

loanDepot IPO Summary

LDI is a leading technology-enabled U.S. consumer lending platform. LDI launched its business in 2010 to provide credit solutions to consumers who were not satisfied with the service offered by banks and other traditional market participants.

LDI is the nation’s second largest direct-to-consumer non-bank originator by annual funded loan amount and facilitated over $50 billion in total funding since inception.

loanDepot IPO Valuation

Glossary

Valuation Ratios

Mrkt Cap (mm)

Price /Sls*

Price /Erngs*

Price /BkVlue*

Price /TanBV**

% offered in IPO

loanDepot (LDI)

$2,499

2.9

416.5

5.3

1.2

20%

*Annualizing Sept 3 mos

.

.

.

*fully diluted

**class A stock only

             

Annualizing Sept 9 mos

$2,499

2.6

27

     

 

COMPARE

Summary annualizing Sept 3 mos

     

Valuation Ratios

Mrkt Cap (mm)

Price /Sls*

Price /Erngs*

Price /BkVlue*

Price /TanBV**

loanDepot (LDI)

$2,499

2.9

416.5

5.3

1.2

*Annualizing Sept 3 mos

.

.

.

*fully diluted

**class A stock only

           

Lendingtree (TREE)

$1,450

5.2

59.5

12.8

14.6

Lending Club (LC)

$5,340

5.9

-303.4

5.4

6.0

On Deck Capital (ONDK)

$731

2.7

49.0

2.3

2.3

 

         

Valuation Ratios

Mrkt Cap (mm)

Price /Sls*

Price /Erngs*

Price /BkVlue*

Price /TanBV

 

Lending Club (LC)

$5,340

5.9

-303.4

5.4

6.0

 

Annualizing Sept 3 mos

       
             

*Annualizing Sept 9 mos

$5,340

6.7

-205

     
             

Valuation Ratios

Mrkt Cap (mm)

Price /Sls*

Price /Erngs*

Price /BkVlue*

Price /TanBV

 

On Deck Capital (ONDK)

$731

2.7

49.0

2.3

2.3

 

*Annualizing Sept 3 mos

       
             

Annualizing Sept 9 mos

$731

2.9

163.2

0.7

0.8

 
             

LDI IPO Conclusion

Neutral

100% rev growth for June 6 mos yr-to-yr

Comparing Sept 9 mos yr-to-yr:  rev +79%, profit +230%

(using estimate mid-points)

Sept qtr vs June qtr:  -10% rev decline & -87% profit decline

(using estimate mid-points)

High satisfaction rating, 60 vs industry ave of 16

Compare to two other lending platforms:

Price to sales 2.7 vs 2.9 for ONDK

Price to book 5.3 vs 5.4 for LC

Business
LDI is a leading technology-enabled U.S. consumer lending platform. LDI launched its business in 2010 to provide credit solutions to consumers who were not satisfied with the service offered by banks and other traditional market participants.

LDI is the nation’s second largest direct-to-consumer non-bank originator by annual funded loan amount and facilitated over $50 billion in total funding since inception.

LDI currently offers a broad suite of consumer credit products to its customers, ranging from home loans to unsecured personal loans.

LDI’s hybrid originate-to-sell and marketplace business model allows LDI to generate significant loan volume with less capital than traditional market participants.

For the twelve months ended June 30, 2015, LDI originated $22.1 billion in loans, representing 125% year-over-year growth relative to the twelve months ended June 30, 2014. Moreover, LDI has generated this substantial growth while maintaining profitability since 2012.

Sept qtr decline relative to June '15 qtr
The decrease in estimated total net revenues compared to the three months ended June 30, 2015 is primarily attributable to unrealized mark-to-market losses on servicing rights due to a decrease in interest rates on a higher balance of servicing rights and a generally weaker home loan market during the three months ended September 30, 2015 as compared to the three months ended June 30, 2015.

BUT the summer months are supposed to be the peak months

Consumer lending market
The consumer lending market in the United States is massive, with more than $11.8 trillion in household debt outstanding as of June 30, 2015.

LDI believes that banks and other traditional market participants continue to be ineffective in adequately addressing consumer needs due to increasing capital requirements, regulatory constraints, legacy systems and antiquated processes.

In addition, LDI expects its addressable market to expand, as consumer debt in its target markets was $1.6 trillion lower at June 30, 2015 than at December 31, 2008. This represents a compelling opportunity for us to disrupt the market and gain share by both displacing incumbent participants and addressing unmet demand.

Homebuyers Falls in U.S., Now at 28-Year Low

Satisfaction rating
LDI believes its NPS, an index that measures customer satisfaction and loyalty, of 59.5 for the six months ended June 30, 2015 and 63.5 for the year ended December 31, 2014 (for those channels LDI primarily operated in at the time) demonstrates LDI's strong direct customer relationships and success in providing a better experience and compares favorably to the 2014 annual industry averages of approximately 16 for national banks and approximately 22 for regional banks

Home lending
Given this significant opportunity and its management team’s experience in providing home loan products, LDI identified home lending as its most effective entry point into the broader U.S. consumer lending market.

LDI targeted the home lending market for the following reasons:

(i) it has the largest addressable market with $8.6 trillion outstanding as of June 30, 2015;

(ii) its complexity and licensing requirements present significant barriers to entry, which LDI’s management team has had significant experience and success in addressing;

(iii) consumer dissatisfaction with banks and traditional lenders provides an opportunity for significant disruption; and (iv) home loan products provide a foundation for direct customer relationships and powerful cross-selling opportunities for other loan products, thereby increasing customer lifetime value. Building on these direct customer relationships and the success of its existing home loan products,

LDI continues to broaden its product suite, which now includes home equity and unsecured personal loans. By providing a robust suite of secured and unsecured loan products and leveraging technology to provide a better and more efficient customer experience, LDI strives to become America’s Consumer Lending Platform.

Intellectual property
LDI holds registered trademarks with respect to the name loanDepot and logos and various additional designs and word marks relating to the loanDepot name. LDI does not otherwise rely on any copyright, patent or other form of registration to protect its rights in its intellectual property.

LDI’s other intellectual property includes proprietary know-how and technological innovations, such as its proprietary credit decisioning and scoring models, and other trade secrets that LDI has developed to maintain its competitive position.

Competition
As a technology-enabled consumer platform that provides multiple credit products, LDI competes with other alternative, non-bank lenders across various products, including credit marketplaces and originate-to-hold lenders. LDI also competes for customers with other financial institutions and companies including banks, credit unions and consumer finance companies.

On Deck Capital Inc(NYSE:ONDK)

LendingClub Corp(NYSE:LC)

5% shareholders pre-IPO
Entities affiliated with Parthenon Capital             31.5%

Trilogy Mortgage Holdings, Inc.             18.1%

Anthony Hsieh   51.5%

Brian P. Golson             31.5%

Andrew C. Dodson        31.5%              

Dividends
No dividends are planned.

Use of proceeds
LDI expects to receive $413 million from its IPO and use it for the following:

(1) $52.1 million to redeem 3,067,227 shares of its Class A common stock from the Parthenon Stockholders,

(2) $38.4 million to purchase 2.4 million Holdco Units, together with an equal number of shares of its Class B common stock, from the Exchanging Members, including its Chief Executive Officer and certain of its other and

(3) up to $14.5 million to purchase Premium Holdco Units from certain holders, including its Chief Executive Officer and certain of its other officers. LDI will contributes the remaining net proceeds to LD Holdings and LDLLC, who intend to use net proceeds of approximately

(1) $63.5 million representing the purchase price related to a prior acquisition to holders of LDLLC’s Class I common units,

(2) $32.2 million for contingent consideration and to repay in full its Seller Notes related to its prior acquisition of Mortgage Master, and

(3) $212.0 million for general corporate purposes.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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