OakNorth Bank, the UK-based SME lender, is focused on acquisitions in the UK and US rather than an IPO in the near term, according to two executives at the business.

The company has been flagged as a long-term IPO candidate, but its immediate priority is on acquisitive growth, the executives, Jules di Mambro, Head of Corporate Development and Investor Relations, and Valentina Kristensen, Corporate Affairs Director, said in a joint interview.

M&A targets should help it to accelerate entry into attractive, niche, or new product segments and offer capabilities not easily built in-house or without an acquisition, they added.

An acquisition “has to be something specific, a product segment we can’t play in, or would take too long to build ourselves,” added di Mambro. Examples would be community banks that service SMEs in the lower middle market, he said. In the UK, it is looking at businesses with revenue of GBP 1m to GBP 100m and companies with turnover of USD 1m-USD 100m in the US; targets serving these markets would be the sweet spot for acquisitions, the executives added.

“Our clear white space is very much in that range… larger SMEs that are underserved by high street banks but too small for institutional capital, capital markets and private credit,” di Mambro said.

Michigan’s Community Unity Bank (CUB), which OakNorth acquired this March, was a good example as it had a very entrepreneurial team, which aligned with its founder-led culture, the executives added. One of the key reasons it acquired this was to obtain the banking licence, which in turn enabled it to apply for a national licence, they explained. Other acquisitions that offered similar advantages and involved comparable SME banks would also be of interest, they added.

“Something highly differentiated, very attractive, difficult to get a presence without an acquisition — that’s absolutely of interest,” added di Mambro.

Team quality of the target buy is also key, alongside entrepreneurial leadership at the target, and cultural alignment is essential, they said.

OakNorth favours buying smaller businesses and agile institutions over large, complex ones.

“All M&A is difficult, but acquiring a smaller institution is obviously easier than something like Silicon Valley Bank UK,” Kristensen said, but noted it had bid on this asset won by HSBC in 2023.

OakNorth Bank submitted a bid for Silicon Valley Bank UK during the weekend of 11-12 March 2023, following the collapse of SVB, as reported at the time.

For larger banking acquisitions, OakNorth could raise capital from shareholders, they said.

The company has raised a total of USD 1bn in equity and debt rounds, as per its investor hub, and also issued debt, including a USD 150m Tier 2 subordinated debt issuance in October 2024, which was oversubscribed and used to strengthen OakNorth’s capital base.

“We have large volumes of capital, a highly profitable business… That gives us a lot of flexibility,” said di Mambro.

OakNorth’s geographic focus remains firmly on the UK and the US.

“We have a lot on our plate with the UK and the US… The opportunity in the US is frankly vast,” di Mambro said.

US Growth and in-house advisers

OakNorth’s US expansion is progressing faster than anticipated, following its acquisition of CUB.

The Michigan acquisition provides a state charter, and OakNorth has applied for a national banking license, both executives noted.

Lending activity spans multiple states, including New York, California, Pennsylvania, Virginia, Illinois, and Michigan.

OakNorth reported GBP 214.8m in pre-tax profit for 2024, up from GBP 187.3m in 2023, and has surpassed GBP 12.5bn in cumulative credit facilities, as per company financials.

Its adjusted return on equity stands at 22%, and its total capital ratio is 20.5%, well above regulatory requirements, as per its results posted on its website.

OakNorth’s M&A function is led internally by di Mambro, formerly of Goldman Sachs, and his deputy, Ellen Mo in New York, an ex-Morgan Stanley banker. “Between the two of us, we have strong networks and the ability to screen, vet, and execute transactions ourselves,” he said.

The company does not use external advisors for M&A, although they may be brought in for larger deals.

“We hear about different opportunities on a very ad hoc basis,” Kristensen noted.

IPO off the table for now

Despite public reports, OakNorth is not preparing for a public listing, the executives said.

“There’s no early-stage prep, no banks have been appointed,” Kristensen added. Founders Rishi Khosla and Joel Perlman remain focused on long-term mission rather than exit,” she said.

This comes despite a meeting in London in May this year by the UK government’s economic secretary to the Treasury, Emma Reynolds, attended by fintech banks.

“From our perspective, it was purely to be helpful and to provide a view on what needs to happen to make London a more attractive listing location for fintech companies and neobanks in the future,” Kristensen said of the meeting.

Liquidity for shareholders is already available via dividends and secondary transactions, the executives pointed out.

“We’ve provided dividends for two years now… There’s ample ability to provide liquidity without an IPO,” said di Mambro.

OakNorth has not raised primary capital since 2019. In February 2019, OakNorth announced a GBP 340m round led by Clermont Group and SoftBank. This round took its overall funding to about USD 1bn.

“We’re profitable [so do not need to raise capital for growth]… Never say never, but we don’t have any concrete plans for a funding round,” Kristensen said.