Fintech Enova sinks on news of canceled acquisition, approaches six-year low
Enova has canceled its proposed acquisition of Grasshopper Bancorp and withdrawn its regulatory applications / Photo: mariakray / Shutterstock
Shares of mid-cap fintech Enova International plunged more than 23% on Tuesday, narrowly avoiding their biggest one-day loss in six years. The company abandoned its planned acquisition of digital bank Grasshopper and withdrew its regulatory applications.
Details
Enova, which makes online loans to small businesses and consumers, tumbled more than 23% on the New York Stock Exchange on Tuesday to $173.61 per share. The decline narrowly missed being its biggest since March 18, 2020, notes Barron’s.
The market was reacting to the company’s announcement that it had withdrawn applications related to the Grasshopper acquisition from the Office of the Comptroller of the Currency, which charters and supervises national banks, and the Board of Governors of the Federal Reserve System. The parties announced the planned $369 million deal in December.
“Regulators do not have clear standards for nonbanks that want to become banks and that serve customers whose credit needs today are met mostly outside of the banking system,” Enova CEO Steve Cunningham said in the press release.
Rationale for proposed acquisiton
Enova is a fintech that provides financial services to small businesses and consumers in the U.S. and Brazil, but it does not have a bank charter. This means it must comply with the maximum interest rates set by individual U.S. states or operate through partnerships with other banks.
Acquiring Grasshopper would have given Enova a national bank charter. Such a charter allows a bank to charge borrowers nationwide the interest rates permitted in the state where the bank is based, even if a borrower’s own state has a lower cap. This explains why Enova’s announcement of the planned acquisition drew a positive response from investors, the stock surging around 12% that day. The following day, BTIG raised its target price on Enova by 38%.
Wall Street has not yet updated its stance on the company following the decision to abandon the deal: all seven analysts covering Enova still have “buy” ratings. However, at least two have sharply cut their target prices. Citizens lowered its TP by more than 20% to $215 per share, implying around 24% upside from the last close, while TD Cowen cut its TP by 14% to $220 per share, implying around 27% upside. The consensus target price is $255.14 per share, around 47% above Tuesday’s close.
