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Peer2Peer Finance News | September 18, 2019

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Funding Circle IPO could trigger wave of sector consolidation

Funding Circle IPO could trigger wave of sector consolidation
Emily Perryman

FUNDING Circle’s initial public offering (IPO) could spark a flurry of mergers and acquisitions in the peer-to-peer lending sector.

Industry onlookers have told Peer2Peer Finance News that the IPO gives much-needed clarity on the value of P2P platforms, thus enabling potential bidders to offer a realistic price for their target company.

John Cronin, financials analyst at stockbroker Goodbody, agreed that Funding Circle’s float “will serve as a catalyst to stimulate much-needed consolidation in the P2P sector”.

Read more: Funding Circle reduces price range on IPO

He said the establishment of a valuation range will underpin the push for consolidation, while scale will be necessary in the context of high customer acquisition costs.

“In fact, I would argue that this second point is the principal reason as regards to why the space needs to consolidate,” he said.

Elizabeth Delaney, partner in the corporate team at TLT Solicitors, said although an individual IPO alone is unlikely to directly result in consolidation, it can send a signal to competitors that one of their peers has access to a war chest to make acquisitions. This, in turn, could encourage other boards to think about mergers and acquisitions.

Read more: From ISAs to IPOs! Five game changing moments in P2P

Neil Faulkner, managing director of P2P analysis firm 4th Way, said there are a lot of platforms that are similar enough to benefit from consolidation, which brings economies of scale and, ultimately, greater profits.

“It is also a quicker, although less profitable, way out for owners of smaller platforms if they allow themselves to be bought out early, or if they merge businesses with some chiefs voluntarily stepping down to a lighter advisory board role or becoming the chairperson,” he said.

Matt Hopkins, head of the fintech team at business advisory firm BDO, added that the challenger lending market is still incredibly fragmented, with “a swathe of mid-sized businesses looking to consolidate to gain scale”.

Read more: Funding Circle confirms £300m IPO plans

This story featured in the October issue of Peer2Peer Finance News, now available to read online.