Open Lending to Go Public in $1.3 Billion Deal

A San Francisco investment group plans to invest $520 million in Open Lending Inc. this year, and take public the Austin, Texas company launched 20 years ago to help credit unions make safe and affordable auto loans to near-prime borrowers.

A company formed by True Wind Capital Partners, a San Francisco private equity firm, will acquire Open Lending in the deal valued at about $1.3 billion. The True Wind investors will acquire about 35% to 40% of the new company, with current owners retaining the majority stake.

John Flynn, a co-founder of Open Lending and its president/CEO, said Wednesday he will continue to run the company as its president/CEO after the closing, expected by mid-June.

“John and his team have developed a highly-scalable technology platform that helps hard-working consumers get into a new or used car at the best rate possible,” said Adam Clammer, a True Wind founding partner.

True Wind plans to retain Open Lending’s management, and Flynn said he expects its workforce of 85 will top 100 before year’s end. Flynn, 64, said he also plans to remain.

“I’m going to stay as long as it’s fun,” Flynn said. “We created something that served the underserved members, and it’s been fun building it.”

More than 275 lenders used the Open Lending platform last year to originate more than $1.7 billion in auto loans. Open Lending expects its margins for earnings before interest, taxes, depreciation and amortization (EBITDA) to exceed 50% and organic revenue growth to top 80% this year, representing over 140,000 loans facilitated.

Open Lending offers loan analytics, risk-based pricing, risk modeling, automated decision technology and loan default insurance through third-party insurers. The OpenLending.com platform was built for credit unions, but has recently begun offering its services to private lenders, including two captive lenders of a domestic and a foreign manufacturer.

“We believe there is significant runway for new growth opportunities within our existing base of credit unions and banks as well as through untapped opportunities such as OEM captive partnerships,” Flynn said.

In the transaction, Nebula Acquisition Corp. (NASDAQ: NEBU), a public company formed previously by True Wind, will acquire Open Lending Inc. and change its name from Nebula to Open Lending Corp, and change its ticker symbol on Nasdaq.

The transaction reflects an implied estimated enterprise value at closing of $1.3 billion, representing a 12.2x multiple to 2020 expected EBITDA of $109 million.

“Open Lending’s ability to demonstrate consistent organic growth and high levels of profitability represents an exciting investment opportunity within the risk-based analytics ecosystem,” Clammer said.

Flynn started his working life as a teller in 1977 at Congressional Federal Credit Union. He served as president/CEO of Washington Gas Light Federal Credit Union (now TruEnergy) from 1985 to 1994, when it had $41.2 million in assets and 6,274 members. After leaving, he started a company that provided asset-liability management for credit unions.

In 2000, Flynn, Sandy Watkins and Ross Jessup founded Open Lending. It specializes in near-prime auto lending, which Experian estimates accounted for 20% of borrowers in the third quarter of 2019.

Open Lending’s system is designed to allow near-prime borrowers “to finance their vehicles at more attractive rates when compared to traditional lending alternatives, while presenting a similar risk profile to the lender as that of a prime borrower.”

The genesis of the deal reached Jan. 5 was a minority investment made in 2015 by Bregal Sagemount, a private capital firm that targets fast-growing companies, Flynn said.

After three years, when such an investor normally exits, it decided to stay on and Open Lending was approached by other potential investors.

“We’ve been growing so quickly, and had much success in the credit union space,” he said. “Everybody wants to give you money when you don’t need it.”

After Open Lending explored its alternatives, it went with True Wind, which invests exclusively in technology companies.