• FDIC-regulated deposit providers on the radar
• UK deals also under consideration
• Company readies itself for potential IPO

UK-based challenger bank OakNorth is looking for opportunities to increase its footprint in the US through acquisitions, CFO Rajesh Gupta told Mergermarket.

The fintech, which specializes in lending to companies generating GBP 5m-GBP 100m turnover, wants to fund its US loans through local channels and structures instead of through its UK balance sheet, Gupta said.

Potential targets include Federal Deposit Insurance Corporation (FDIC)-regulated deposits providers, which would allow OakNorth to raise US deposits and use them to lend to local businesses, said the CFO.

Companies offering adjacent solutions to OakNorth’s core SME borrowers, such as payments and current accounts, are also on the radar, the executive added.

Gupta declined to offer details on the likely size of potential acquisitions, only noting that OakNorth is unlikely to acquire a “big” US asset.

London-based OakNorth began operating in the US in 2H23, and around USD 200m of the company’s total GBP 1.7bn gross new lending facilities last year were given to US businesses, according to a press release.

The company uses a small internal team and external advisors to help identify M&A opportunities, said Gupta. A number of investment banks also support its acquisition strategy but it has not made any exclusive appointment, he said.

OakNorth has a variety of available options to finance M&A deals, said Gupta. As a profitable business, it can pay for smaller deals in cash, while larger transactions can be funded by debt, equity, or a combination.

“Pretty much every tool available for capital raising is available to us,” said Gupta, noting that the company’s shareholders support its US M&A strategy.

Last year, OakNorth’s profit before tax jumped 23% year-over-year to GBP 187.3m, according to its annual report.

While its priority is on US acquisitions, the company also considers deals for UK-based targets when opportunities arise, said Gupta.

OakNorth’s most recent M&A deal was its acquisition of a 50% stake in UK-based real estate lender ASK Partners, in October 2022, said the executive.

BDO acted as financial advisor to OakNorth on the ASK Partners acquisition, while Paul Hastings provided legal counsel.

The company also acquired local intelligence cashflow specialist Fluidly in December 2021, Gupta noted.

Exit timeline

As it considers options to provide liquidity to its investors, OakNorth is monitoring the initial public offering (IPO) market closely and is preparing itself to have the ability to become a public company one day, Gupta said.

Management, however, is “not in any rush” to launch an IPO, nor does it have a timeline in mind, as its investors are long-term and it is not facing any capital restraints from a growth perspective, he said.

The company’s investors include SoftBank, Clermont Group, Toscafund and NIBC, according to its website.

Founded in 2015, OakNorth provides credit and personalized banking services to companies in the “missing middle” which are often rejected by traditional lenders, Gupta said.

The fintech has lent more than GBP 10bn since inception to companies including restaurant groups, home-care providers and house-builders, he said.