ESF Capital Acquires Controlling Stake in ThinCats

The M&A “hokey cokey” – as David Stevenson recently termed it – has well and truly begun.

ESF Capital has acquired a 73.4% equity stake in secured business lending platform ThinCats. ESF Capital was spun out of ESO Capital, a European specialist investment firm which was founded in 2006. In February, ESO committed to deploying £20-£50 million through the ThinCats platform. ESF Capital invests in and underwrites loans on a select crop of European peer-to-peer lending platforms. The vehicle is also focused on taking minority and majority equity stakes in peer-to-peer platforms that target the European SME space. In conjunction with the ThinCats investment, ESF will also be providing further underwriting and lending capital in order to accelerate the platform’s loan growth.

ThinCats operates a secured SME lending model, generating and managing deal flow via a network of “sponsors”. The platform has lent a little over £140m to date, and boasts an annualised year-to-date growth rate of 65.1%, according to the Liberum AltFi Volume Index UK (LAVI UK). 

The ESF investment represents the first major acquisition of a UK-based peer-to-peer lender. Funding Circle recently made a splash by acquiring the Rocket Internet baby Zencap, thus branching out into the German, Dutch and Spanish SME markets. Funding Empire, Wales’ sole peer-to-peer lending outfit, sold a 76% stake to residential mortgage servicer and lender Paratus AMC, which then held around £2.6bn in assets under management. But Funding Empire had transacted a cumulative total of just £210k in SME loans at the time of the sale. ThinCats, on the other hand, is the second largest specialist peer-to-peer small business lender in the UK, and is also a member of the industry trade association – the P2PFA.

The platform’s management team has been reshuffled. ESF Capital CEO John Mould has assumed the role of ThinCats CEO from Kevin Caley. Mr. Caley will remain involved as Chairman, with Peter Brown retaining his post as Finance Director. Mr. Mould offered comment:

“ThinCats sits on unique foundations. It has the largest average loan size in the sector, and has been first to market with a number of innovative financial products. The injection of capital and expertise we are bringing to the platform from ESF, will focus on strengthening these foundations, pushing loan sizes higher, and developing both products and platform to attract a wide range of investors. The peer to peer lending industry is truly coming of age, and today one of the longest of tooth gets a little sharper.”

In terms of the overall sharpening of the ThinCats offering, it may be no coincidence that the front-end of the platform is fresh off of a long-awaited revamp. As yet we have no detail around what the platform’s new pipeline of products might look like, but representatives have indicated that the intention of such developments is to attract “a broader range of investors”.

Perhaps those investors will one day include the likes of RBS, which yesterday announced a deal with three global asset managers – Hermes Investment Management, M&G Investments and AIG Asset Management – in order to begin lending to private equity-backed medium sized businesses. Were this scheme to serve as something of a blueprint for one day breaking into the small business lending space, the revamped ThinCats might well come to serve as an investment channel – keeping in mind Mr. Mould’s former post as Chief Operating and Financial Officer at Hermes Fund Managers.

Kevin Caley, now Chairman of the ThinCats platform – which he founded back in 2010, weighed in on the acquisition:

“Over the past five years, ThinCats has become highly valued by a network of hundreds of experienced DIY investors who bring a unique ‘crowd due diligence’ to the platform  in return for market leading interest rates. This investment by ESF is the fuel we need to take the ThinCats platform up a gear, to retain and extend this core lender base and to attract a broader range of investors. It’s a big step forward for the platform, and will allow ThinCats to cement its place as one of the UK’s big four peer to peer providers.”