The acquisition of RateSetter by Metro Bank could be more valuable than its headline sale price suggests, industry commentators claim.
It was announced last month that Metro Bank had agreed, subject to regulatory approval, to acquire RateSetter for an initial consideration of £2.5m, with up to £9.5m to be paid out after the completion of the deal. The sale price was met with surprise by some, due to the £25m to £50m valuation predicted when the sale was first mooted and comes after RateSetter was valued at £200m during an equity funding round in 2017.
However, industry sources have suggested that RateSetter’s price tag is not indicative of the company’s full value. The platform’s latest annual accounts, for the 12 months to March 2019, showed that it had narrowed its losses to £4.2m from £27.5m the previous year and had attracted more than £200m into its Innovative Finance ISA, making it one of the largest providers. The accounts also revealed that RateSetter had £18.7m of cash in the bank.
Another asset is RateSetter’s 14 per cent stake in its Australian subsidiary, worth £13.7m, which could be boosted if it floats as planned. Sources cited in Australian news reports have suggested that the platform – recently rebranded as Plenti – could be valued at AUS$300m (£165m) when it goes public, which would value RateSetter’s stake at AUS$42m.
John Cronin, analyst at brokerage Goodbody, said a RateSetter Australia listing or even a sale of the business could be “a source of upside for shareholders.” There could also be benefits for RateSetter’s peer-to-peer investors, although any new unsecured loans will be solely funded by Metro Bank going forward.
Neil Edwards, chief executive and founder of The Marketing Eye, an alternative finance and fintech-focused marketing agency, said RateSetter has a large and loyal customer base, which could be useful as it continues as an independent brand for existing users.
“At a consumer level, I suspect the reaction of RateSetter customers will be largely neutral and they’ll wait and see what happens next,” Edwards said. “If there are good amounts of cash available for investment, this provides the run time for Metro and RateSetter to consider their next steps carefully. “Product development needs more than cash; it needs good ideas and the management ability to deliver what customers really want.
“RateSetter does P2P well and there is an obvious opportunity to leverage its brand and customer franchise with cross sales of Metro products or even diversification, by offering insurance or investment products, for example.” Edwards did, however, warn that “the risk of diversification is distraction” and said management must do their due diligence before “going into areas that could end up damaging the brand, not enhancing it.”