The company has $3.4 billion in balances with an average FICO score of 630. card issuer with 2.8MM credit card accounts. Credit cards are a high-margin business and the acquisition immediately provides a scale that would be impossible to quickly achieve organically.ĬardWorks is a Top-20 U.S. ALLY has experience in cross-selling from the addition of TradeKing, which is now called ALLY Invest. Now the company can cross-sell additional credit card offerings to its existing clients, while also targeting the banking business from CardWorks' 2.8MM customers. As an individual customer of ALLY, I regularly get marketing materials pitching mortgages, investments, etc. Most importantly, ALLY can now offer a vital banking product (credit cards) to its already large and growing customer base. ALLY’s large deposit base should create additional synergies through a more attractive funding profile. Part of the reason for this is that the deal is supposed to bring over $50MM annually in expense synergies by year-end 2021. ALLY’s management seems to believe that the acquisition is a more efficient and less costly way to expand into credit cards, leveraging its attractive deposit and customer base. ALLY believes that the acquisition should generate an IRR of greater than 20%, when you factor in synergies, merger-related charges, and the impact from CECL. Adjusting for excess capital, the multiple drops to 6x to 7x. The acquisition of CardWorks was not too expensive, at around 10x Adjusted TTM net income. While these are valid points and I’d personally rather the company hadn’t made the acquisition, there are some major benefits to the acquisition, and the decline in the stock makes it a fantastic value in a very expensive market. In addition, from a cyclical perspective, buying a credit card company at this point of the credit cycle might seem to be a stretch. Market, mainly because ALLY is paying for 49% of it using an undervalued stock as currency. The acquisition of Cardworks for $2.65 billion was likely shunned by Mr. Ally Financial ( NYSE: ALLY) is a deeply undervalued stock, after a questionable acquisition made on February 19 th, caused a dramatic decline.
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