Vervent will buy to enhance loan and credit servicing lines
Vervent, a Stone Point Capital-owned credit card and loan servicing fintech, is in talks with potential acquisition targets and expects to complete at least one deal in 2024, said COO and CFO Dhruv Vakharia.
The San Diego-based company is looking for capabilities that could enhance any of its three verticals of credit cards, loan servicing or capital markets support for servicers needing a contracted backup servicer, Vakharia said. It has not signed any letters of intent, he added.
The fintech space has many acquisition prospects from startups struggling with the constrained funding environment of the last 18 months, he said.
Smaller businesses in the servicing sector trade at about 2x-3x EBITDA, while larger companies are typically valued in the higher single digits, the executive said. The firm is not willing to buy a company larger that itself because targets too large would be difficult to integrate, he said.
Vakharia declined to disclose company financials. The firm, which has about 2,000 employees globally, services about USD 147bn in assets as a primary or backup servicer and manages more than one million consumer credit card accounts, he said.
Vervent would consider buying a company not yet profitable if it has a strong capability and the seller is willing to defer most of the deal value on an earnout basis, Vakharia said.
The company has made four acquisitions since Stone Point invested and rebranded in 2019. Each of those transactions saw millions of dollars in synergies, according to Vakharia.
Vervent originates credit card accounts funded by banks and other creditors and services them throughout their lifecycle. It announced on 11 January an agreement for up to USD 180m in financing from Castlelake for its credit card business.
The company also has a debt facility from a syndicate of eight large banks that have provided capital since 2019, the executive said.
Vervent services existing loans in every major category except mortgages. It contracts as a backup servicer for banks and lenders in case the original loan servicer or credit account fails, Vakharia said.
The company generates revenue from servicing fees in all three verticals, said Vakharia.
Its previous buys have been tuck-in and horizontal, he said. The firm most recently bought Smiles on Demand in February 2023 for an undisclosed price. The Philippines-based business process outsourcing company added scale to Vervent’s servicing and customer contact footprint in that country, per the deal announcement.
At the time of publication, Mergermarket’s Likely to Exit (LTE) predictive algorithm assigned Vervent a score of 29 out of 100, weighted heavily on average sponsor hold time and total number of acquisitions. Vervent has a “great relationship” with Stone Point, which has been especially helpful with its growth and acquisition strategy, Vakharia said.
Kirkland Ellis provides legal services. Moss Adams and RJI provide accounting services. Wells Fargo, US Bank and HSBC provide commercial banking.
*Mergermarket’s LTE predictive analytics assign a score to sponsor-backed companies to help track and predict when an exit could occur through M&A, an IPO, a direct listing or a deSPAC transaction.