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Goldman Sachs (GS) to Buy GreenSky, Expand Its Consumer Unit

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In an effort to augment its retail lending footprint, The Goldman Sachs Group, Inc. (GS - Free Report) has entered into a definitive agreement to acquire GreenSky, Inc. (GSKY - Free Report) , a pre-eminent fintech platform that offers home improvement consumer loan originations.

Since its inception in 2006, GreenSky has been offering simple and transparent home improvement financing solutions to around four million customers across more than $30 billion of loans. With a growing network of more than 10,000 merchants and a proprietary cloud-native technology offering digital point of sale financing solutions, GreenSky’s competitive capabilities will be aligned with Goldman’s online consumer banking platform, Marcus by Goldman Sachs.

David M. Solomon, chairman and CEO of Goldman noted, “GreenSky and its talented team have built an impressive, cloud-native platform that will allow Marcus to reach a new and active set of merchants and customers and provide them with an expanding set of solutions.”

Acquisition Details

As part of the agreement, Goldman will acquire GreenSky in an all-stock deal. GreenSky stockholders will receive 0.03 shares of Goldman’s common stock for each share held.

Based on Goldman’s share price as of Sep 14 close, it implies a price of $12.11 per GreenSky share, equating the transaction value to around $2.24 billion. The transaction represents a premium of around 56% over GreenSky’s share price as of Sep 14 close.

The boards of directors of both companies approved the transaction. Conditional on the nod from GreenSky stockholders, the receipt of required regulatory approvals, and satisfaction of other customary closing norms, the transaction is expected to close in fourth-quarter 2021 or first-quarter 2022.

Transaction Rationale

GreenSky’s unique lending capabilities and leading merchant and consumer ecosystem will aid Goldman in strengthening its consumer banking unit. Moreover, it provides Goldman an opportunity to leverage on the lender’s growing user base and to tap the $430 billion home improvement market and position it for significant growth.

The acquisition is expected to generate robust returns on invested capital with mid-teens IRR accretion. Also, by strengthening its consumer banking business, the transaction will diversify revenues and propel higher and more durable returns.

Bottom Line

The transaction reflects Goldman’s progress in fortifying its consumer business and digital offerings and diversifying income sources. Moreover, since the pandemic, digital businesses and online activity have become indispensable and will continue to gain traction in the upcoming period.

Last month, the company entered into an agreement to acquire Dutch asset manager NN Investment Partners from NN Group N.V. in a €1.6-billion (or $1.9 billion) all-cash transaction. This will improve Goldman’s international presence, and European retail distribution and insurance asset management capabilities.

Over the past year, shares of the company have surged 106.3%, outperforming 84.2% growth recorded by the industry.

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Currently, it carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Similar Moves by Other Banks

The current low interest rate environment and other challenges due to the coronavirus pandemic have been taking a toll on banks' profitability. Amid this, companies have looking to enhance product offerings and make opportunistic acquisitions to remain relevant.

JPMorgan Chase (JPM - Free Report) recently signed a deal with Volkswagen AG’s subsidiary, Volkswagen Financial Services, in a bid to enter into the automotive industry and bolster digital payment competencies. Per the deal, the bank will take a controlling stake of almost 75% in the automaker’s payments platform, Volkswagen Payments S.A.

In a bid to augment its capital market capabilities, Citizens Financial Group, Inc. (CFG - Free Report) clinched a definitive merger agreement with JMP Group LLC under which it will acquire the latter in an all-cash transaction.