Online Lending

How LendingTree and SnapCap Crossed Paths

LendingTree in recent days revealed the acquisition of online platform for small business lending SnapCap’s non-lending assets in a $21 million deal, including $12 million upfront and $9 million in contingency payments. The deal gives online lending marketplace LendingTree more scale in the small business market ahead of what could shape up to be recovery in 2018.

J.D. Moriarty, LendingTree Chief Financial Officer, told deBanked that SnapCap’s 20 employees will stay in Charleston, and the brand will remain intact. “For them, their employer just got both a whole lot more stable and scalable. As with anything we acquire, we will keep the brand in place and test it to see what is most effective,” said Moriarty.

LendingTree has been connecting small businesses with lenders since 2014, and the latest deal reflects a strategy to add scale.

“It’s a bit of what you might call an acqui-hire. LendingTree is growing quickly and scaling. We hired a really good team in SnapCap that will basically be our way of scaling in small business,” said Moriarty.

LendingTree is lifting its profile in the small business segment amid an industry transformation that is thinning the pack and has seen some players shifting gears entirely.

“Small business lending might do very well in 2018. And we are investing now to grow the base of our business. On a macro level, we expect our business to do well in 2018 regardless. But if small business lending recovers and suddenly you see companies like OnDeck doing well, we will benefit from that. But we position any acquisition assuming that the market doesn’t recover and the deal still must be attractive to us, even if the market continues to struggle.”

Moriarty went on to provide a glimpse into the financial structure of the deal.

“Last year, SnapCap set up a special purpose vehicle (SPV), which was funded by outside capital with which they would actually make loans. There’s a balance sheet aspect to that business we are not acquiring. But it was a small percentage of their business,” Moriarty explained.

Inside the Marketplace

LendingTree is largely known as a marketplace for mortgage loans where they represent about 50 percent of comparison shopping for mortgages. “That is how people think of us for sure,” said Moriarty. The revenue drivers have expanded in recent years, however.

For instance, mortgages used to account for 90 percent of revenue. Today, based on the most recent quarter, less than half of business originates from mortgages while the balance is in personal loans, credit cards, home equity, small business and auto loans.

LendingTree is no stranger to acquisitions, having done five such deals since June 2016. “What we’re trying to do is to build other marketplaces where people want to comparison shop,” said Moriarty.

But growth by acquisition is not their only growth strategy. “We’re growing period,” said Moriarty, adding that organic growth has been very good but small business in particular is a tough market to scale.

One of the recent deals, the acquisition of CompareCards a year ago, led them to gain market share in the credit card space. That deal also led LendingTree to SnapCap. CompareCards founder and president Chris Mettler and his wife own more than a one-third equity stake in SnapCap.

“SnapCap was introduced to us through Chris. He’s now a LendingTree employee. The introduction was absolutely from him. But it’s very consistent with our strategy, which we have conveyed to the market. We will continue to make small, accretive acquisitions and that will help us to gain scale in certain businesses and diversify,” said Moriarty.

Hybrid Model

While LendingTree and SnapCap both facilitate loans to the small business community, they take slightly different approaches to get there. “SnapCap’s core business is not unlike ours, meaning they are essentially finding high quality leads for lenders,” said Moriarty.

SnapCap uses a concierge model in which customers have a broker experience. They talk to someone at the company who helps them to identify a lender.

“LendingTree will be bigger and more scalable through both the traditional LendingTree model and SnapCap’s concierge approach. We will simply be able to serve lenders more effectively. If I’m a lender making small business loans, this is a pretty good thing.” he said.

SnapCap, meanwhile, is looking forward to the very same scale that LendingTree is targeting.

“The mission of SnapCap has always been to serve small business owners with access to funding. LendingTree’s leading online lending marketplace combined with SnapCap’s successful concierge model will enable us to serve an even wider range of business owners,” Hunter Stunzi, co-founder of SnapCap, told deBanked.