Goldman Sachs’ acquisition of GreenSky supports digital consumer banking – Moody’s
The Goldman Sachs Group Incorporated has announced an agreement to acquire GreenSky Incorporated in an all-stock transaction valued at approximately $2.24 billion.
GreenSky is a market leader in mobile, online and in-store point-of-sale financing in the home improvement sector.
In its credit outlook compilation sighted by The Ghana Report on Monday, September 20, Moody’s stated that the acquisition is credit positive as it supports Goldman Sachs’s digital consumer banking initiative.
It is also conservatively financed, and fits well strategically with Goldman Sachs’s focus on building its consumer banking business through partnerships, Moody’s noted.
The credit ratings firm has said that, “Goldman Sachs’ expansion into digital consumer banking is one of several strategic growth initiatives the firm is pursuing as a way to increase earnings from recurring revenue, lower funding costs and reduce reliance on wholesale funding.”
Much of this expansion has been organic, but the firm has also made selective acquisitions to advance these growth initiatives. Moody’s expect the credit-positive benefits of these initiatives to accrete gradually, assuming successful execution.
Conservatively financed acquisitions can accelerate the benefits, but integrating acquisitions can also pose challenges if there are significant cultural differences.
GreenSky is a financial technology company enabling financing at the point of sale (POS) for an ecosystem of merchants, consumers and lending partners.
Through GreenSky’s platform, merchants and lenders provide promotional financing to consumers with high credit scores for large-ticket purchases in home improvement and elective healthcare markets.
The company’s technology platform, which is delivered over a mobile-native intuitive interface at the POS, supports the full lending transaction lifecycle, including credit application, underwriting, real-time loan allocation to lending partners, document distribution, funding, settlement and servicing.
The company generates revenue from fees paid by merchants each time a consumer utilizes the platform to finance a purchase, and from fixed servicing fees on the loan servicing portfolio paid by lending partners.
As of 30 June 2021, GreenSky’s loan-servicing portfolio was $9.4 billion, over 90% of which consisted of borrowers with credit scores over 700.
Historically, in benign credit and interest rate environments, GreenSky had been highly earnings and cash flow generative.
However, the recent difficult macroeconomic environment has driven a significant increase in loan costs and balance sheet investment requirements, pressuring margins and reducing cash flow generation.
In addition, while GreenSky’s differentiated POS credit offering benefits from solid customer demand, competition is intensifying and the company’s home improvement business has recently underperformed overall home improvement market trends.