Industry veteran Som Seif's Purpose Financial LP is scooping up online lender Thinking Capital Financial Corp. in one of Canada's largest financial technology deals.
Purpose Financial is acquiring 100 per cent of the Montreal-based provider of small-business loans for a combination of cash and securities, the two firms plan to announce on Friday. Industry sources say the price is more than $200-million, making it the second deal this year where a major Bay Street player has shelled out nine figures for an up-and-coming tech provider. In January, Toronto-Dominion Bank acquired artificial-intelligence startup Layer 6 AI for more than US$100-million.
Since its inception in 2006, Thinking Capital has provided short-term online loans ranging from $5,000 to $300,000 to more than 15,000 small- to mid-sized businesses. Many of these loans are below the threshold a typical bank would be able to finance.
The missed opportunity for banks caught the eye of Canadian Imperial Bank of Commerce, which announced a strategic referral agreement with Thinking Capital in 2015.
"Small business lending is an area that is largely untapped and poorly structured for many businesses who require financing, so we have decided to invest in a technology-driven financial solution for that market," Mr. Seif said in an interview. "Thinking Capital is a clear leader in the small to medium-sized business lending space, with credit adjudication technology and presence that are unmatched in the Canadian market."
Thinking Capital has also built partnership agreements with Moneris, Global Payments, TD Merchant Services, Chase Paymentech, Staples Canada and SalesForce. (All partnership agreements will be retained following the acquisition.) Mr. Seif says he hopes to build the financial services platform even further by adding technology around payment processing and other lending solutions.
Thinking Capital's chief executive and co-founder Jeff Mitelman was first introduced to Mr. Seif several years ago through a joint acquaintance at private-equity firm TorQuest Partners Inc., a majority shareholder in Thinking Capital.
"What we found in Purpose is that they have a very similar vision in the wealth and asset management space," Mr. Mitelman said. "We are both solving equally significant problems in the market and looking to solve those problems in non-traditional ways. Improved access to capital under the Purpose Financial umbrella means we will be able to significantly increase our capacity to deliver financing to even more small businesses."
Following the transaction, Thinking Capital will retain its headquarters in Montreal and all 200 employees will remain with the company. In addition, Thinking Capital's shareholders will hold an interest in Purpose, with Mr. Mitelman and TorQuest becoming meaningful equity holders of Purpose.
Mr. Seif has been paying close attention to the fintech space for several years and is most well known for promoting the use of exchange traded funds, having sold his seven-year-old ETF company Claymore Investments to BlackRock in 2012. He has been a long-time advocate of online portfolio managers and sits on the board of the country's largest roboadviser Wealthsimple. His interest in the fintech space accelerated last May when OMERS Platform Investments, a branch of one of Canada's largest pension fund providers, claimed a minority stake in his exchange-traded funds provider Purpose Investments.
Now, along with significant backing from OMERS, Mr. Seif, in addition to growing his ETF business, is looking to build a financial technology services platform that he says will be one of the largest in North America. The platform is housed under Purpose Financial, a holding company Mr. Seif created last year. In addition to Thinking Capital, it currently holds Purpose Investments, Purpose Advisor Solutions – a new entity that offers investment advisers access to technology and portfolio management tools, Purpose Innovation Lab, a group that funds and implements new ideas such as block chain, artificial intelligence and other solutions relevant to financial services.
With Thinking Capital, the combination of direct loan origination with Purpose's asset management offers the potential to create unique investment products in the alternatives space, Mr. Seif said.
With files from reporter Sean Silcoff