Lending Club has announced that it is pricing its IPO at $15 a share. This gives the company a valuation of $5.4 billion – higher than the range it released at the beginning of this week, $12 to $14, which was an increase of the original range of $10 to $12 a share.
At $15 Lending Club will raise at least $870 million when it begins trading today. The platform was founded in 2007 and has since originated more than $6 billion of loans, approximately three times as many as its nearest rival in the US.
The high share price is an indication of strong investor interest. If Lending Club’s underwriters use an option to buy more shares from the company to meet this investor demand the size of the IPO could rise to about $1 billion. Of the 57.7 million shares it is selling, Lending Club has provided 50.3 million, while stockholders have sold the rest.
The higher price of $15 means that Lending Club’s shareholders stand to receive an even larger payout. Larry Summers, former US Treasury Secretary, should see his shares valued at about $15 million and John Mack, former CEO of Morgan Stanley will see his holdings valued at $36 million. CEO and founder of Lending Club Renaud Laplanche’s shares will be valued at $220 million. One of the biggest shareholders in Lending Club is Canaan Partners and when it first invested in Lending Club seven years ago it paid 27 cents a share. It now owns nearly $700 million worth of stock in the company. Although these are of course nothing more than paper valuations at present but there has been some realisation of these gains.
Attention is now turning to how the shares will perform in the secondary market. It is likely that the shares will increase in value in the immediate aftermath of the float – but their performance over the next 6 months is less straightforward to predict. Company insiders are prevented from selling shares straight away and have to wait until after the “lock up” period has ended.
This IPO has generated a huge amount of interest in the peer-to-peer sector.
Joshua Rand, Petra Partners LLC, commented:
“It’s great exposure. It gets the word out.”
“It’s a huge moment for marketplace lending and alternative lending. It’s a big coming-out party for what we do.”
"It's interesting to me that personal loans are the hottest thing on Wall Street right now. Ten years ago people would've laughed at you if you said that would be the case."
While Dave Girouard, founder and CEO of Upstart, said:
With the IPO comes increased scrutiny of the company and Lending Club will be under pressure to maintain large origination volumes. The temptation may arise to start lending to sub-prime borrowers. Currently Lending Club’s customers tend to have a FICO score of about 660 and can borrow up to $35,000 for 3 to 5 years. The platform believes that these small loans are now too unprofitable for banks to make.
But people are now looking to Lending Club as an industry leader to prove the worth and durability of peer-to-peer lending. Investors are watching to see how the company will adapt to a change in the economic environment, namely a rise in interest rates, which could cause a wave of defaults on the platform.
“An analyst told me, ‘This industry has grown up in the absolute perfect environment for it’. Eventually, some of those factors are going to turn.”
But Renton added:
“I don’t see them screwing up anytime soon. I think Lending Club, in some ways, would welcome a downturn.”
Doug Lebda, founder and chief executive of Lending Tree, explained:
"You will see an explosion of competition from companies that will do it for cheaper and won't need to make as much money, and that will be the biggest challenge" for Lending Club.”
It is worth bearing in mind that Lending Club is still a very small part of the $3.3 trillion US consumer debt market. But the company has achieved explosive rates of growth, from 2009 to 2013 its annual operating revenue leapt to $98 million from $1.3 million. The IPO will serve as a barometer for the entire peer-to-peer industry and we shall see whether the platform continues to perform under this added pressure.
Join AltFi for its third annual Alternative Income Forum, exploring closed-ended funds (investment trusts) specialising in generating an income using alternative assets such as specialist finance, P2P lending, direct lending, asset leasing and more. Hear from the leading investors and fund managers in this rapidly growing market.