Michael Garrity had high hopes when investment banking giant Goldman Sachs Group Inc. GS-N bought his Canadian online consumer finance company, Financeit Inc., in 2017. Goldman was making a big move into the U.S. consumer finance space and it was “certainly part of our thinking at the time as a management team that there was probably going to be an opportunity to work with them,” Mr. Garrity said.
That didn’t happen. On Friday, Financeit announced that Goldman has sold the 250-person Toronto company to a unit of Wafra, Kuwait’s sovereign wealth fund. While terms weren’t disclosed, an industry source said the deal was likely valued between $350-million and $500-million. The Globe and Mail is not identifying the source because they are not authorized to discuss the matter.
Mr. Garrity started Financeit’s predecessor in 2007 as a peer-to-peer lending service, shifting the business into point-of-sale financing in 2011. Financeit provided merchants in home improvement, auto and retail sectors with consumer financing products they could offer their customers, promising greater transparency by removing hidden fees and extending loans through its online platform.
Financeit now provides products that are alternatives to home-equity lines of credit, and are offered online to Canadian Home Depot customers for amounts of up to $50,000 for six months. Mr. Garrity said the company had grown by 30 per cent annually over the past five years and processed more than 115,000 loan applications in 2021, funding $535-mllion in loan originations in Canada. Financeit’s lending products, underwritten with $1.5-billion from Royal Bank of Canada, Sun Life Financial Inc., Concentra Bank and VersaBank, are also offered by home services providers such as HVAC repair operations so their customers can stretch out bill payments, typically paying single-digit interest rates, Mr. Garrity said.
That makes Financeit, which generated between $80-million and $100-million in revenue last year, both a partner and rival with banks that compete in consumer lending with popular buy-now, pay-later financiers. Those upstarts insert themselves between merchant and customer at the point of sale with instalment payment options, often at lower rates than credit cards that are a big source of revenues for issuers. In response, several banks, including RBC, have launched their own instalment payment programs. But most major lenders have yet to fully embrace the trend, mindful that point-of-sale financing could attract regulatory scrutiny.
Goldman picked up a minority stake in Financeit in 2015, then bought control in 2017 with an undisclosed investment greater than the $50-million the startup had previously raised. Financeit bought Centah Inc., a customer relationship management software provider to the home improvement industry.
Financeit hoped to crack the U.S. market and saw Goldman as a potential partner. Starting in 2016, Goldman pushed into consumer banking in search of new sources of revenue, a major departure for a firm known as a trader and investment banker for institutions and wealthy clients. Its digital consumer bank Marcus, named after founder Marcus Goldman, now has nine million customers and is one of the largest “neobanks” in the U.S.
But there was no overlap between Financeit’s Canadian-focused business and U.S.-centred Marcus. Also, Financeit was owned by Goldman Sachs Asset Management (GSAM), a separate unit from Goldman’s consumer banking group, meaning the Toronto company wouldn’t necessarily get preferential treatment in efforts to combine forces. “While we always knew we had some people in the tower we could talk to, we would have to have an independent conversation with them about any opportunity to work together,” Mr. Garrity said.
Marcus focused on a partnership with Apple Inc. to provide digital credit cards to the smartphone giant’s users and Financeit abandoned U.S. expansion plans for its consumer finance business early in the pandemic. Then last year, Goldman bought U.S. online consumer financier GreenSky Inc. for US$2.2-billion. When asked how successful Financeit had been pursuing a commercial relationship with Goldman, Mr. Garrity replied: “The fact that they bought GreenSky answers the question. Aspirationally, we would have loved to do something with Marcus in the U.S. It just didn’t come to pass.”
Mr. Garrity stressed there were no hard feelings. “Our relationship with the Goldman team has been terrific and it achieved its objective: It was an investment that was meant to help us and ultimately was prosperous for them. It’s done both,” he said. “The Goldman group that invested in us invested to make money and, congratulations, they’ve done so.”
GSAM managing director of private equity Anthony Arnold said in a statement: “Under our ownership, [Financeit] has significantly grown in scale, institutionalized its credit platform, diversified its funding sources, and augmented its product and home improvement service capabilities. We are delighted that they have found a new partner to support them.” A Goldman spokesman declined further comment.
Mr. Garrity said the buyer, Wafra’s Capital Partners unit, would help it grow, as [Wafra] typically lets portfolio companies “use its balance sheet over and above equity investments. This is an exciting part of the partnership. We’ll look at all sorts of new lending models to facilitate our growth because we have an expert in understanding how to support a consumer lending business like ours.”
Wafra Capital Partners chief investment officer Michael Gontar said in a statement: “We are confident that our capital and strategic insight will further evolve the progression that is already under way, allowing Financeit to reach a new ambitious milestone in the years ahead.”
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