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Ally Financial (ALLY) Closes Agreement to Acquire Fair Square

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Ally Financial Inc. (ALLY - Free Report) completes the acquisition of the digital-first credit card company, Fair Square Financial. This October, Ally Financial agreed to buy Fair Square for $750 million in an all-cash deal.

The transaction will advance Ally Financial's evolution as the leading digital consumer bank providing frictionless, innovative products to its growing customer base. In addition to advancing the company's digital offerings, the deal is expected to enhance its ability to grow and deepen customer relationships, and provide access to the $1-trillion credit card market.

Jeffrey J. Brown, Ally Financial's CEO, stated, "The addition of Fair Square and its credit card offerings will enhance our suite of consumer products and aligns with our long-term strategy to be the leading full-service digital-bank."

Notably, Fair Square Financial, founded in 2016, has been focused on providing
products that improve the financial future of customers via leading-edge technology and proprietary, analytics-based underwriting. It currently has approximately 693,000 cardholders and $816 million in loan balances.

Fair Square's CEO, Rob Habgood, commented, "Fair Square was built on the premise of providing fair and transparent credit card offerings. We are excited to continue delivering compelling products with growing momentum as we join the Ally team."

At the time of the deal announcement, the transaction was expected to consume 50-55 bps of Ally Financial's CET1 ratio. However, it would not impact the company’s previously announced $2-billion share repurchase authorization.

Our Take

Ally Financial has been making efforts to enhance digital offerings and introduce products to further boost its profitability. Its wealth management and online brokerage initiatives related to the credit card offerings remain impressive. Acquisitions of TradeKing and Health Credit Services (a point-of-sale payment provider) will likely help in improving the company's product offerings.

The latest acquisition of Fair Square is expected to enhance its profitability and risk-adjusted returns.

Over the past year, shares of Ally Financial have gained 44.3% compared with 42.7% growth recorded by the industry.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

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

Inorganic Growth Efforts by Other Firms

Several companies from the finance sector are undertaking consolidation efforts to counter the low-interest-rate environment along with the heightened costs of investments in technology.

Last month, CVB Financial Corp. (CVBF - Free Report) , the holding company for Citizens Business Bank, announced that Citizens received regulatory approvals from the Federal Deposit Insurance Corporation, and the California Department of Financial Protection and Innovation to complete its previously announced merger agreement with Suncrest Bank. The stock-and-cash deal worth $204 million, announced this July, is expected to close on or about Jan 7, 2022, subject to the satisfaction of all remaining closing conditions.

In an effort to expand its presence, CVBF had announced an agreement and plan of reorganization and merger, according to which Suncrest bank would merge with and into Citizens. The acquisition is the second-largest in CVB Financial's history.

Citizens Financial Group, Inc. (CFG - Free Report) recently completed its previously announced merger with JMP Group LLC. CFG announced the all-cash deal in September in a bid to augment its capital market capabilities.

The buyout is expected to foster growth, diversify Citizens Financial's capital market platform and provide greater scale in key verticals like healthcare, technology, financials and real estate.

Likewise, in an effort to broaden its capabilities for institutional investors and investment management clients, SEI Investments Company (SEIC - Free Report) acquired a global portfolio intelligence platform company, Novus Partners.

SEI Investments' chairman and CEO, Alfred P. West, Jr., stated, "The financial services landscape is ever-evolving. Our markets continue to face an unprecedented pace of change, and we continuously seek opportunities to stay ahead of and manage this change. By making strategic investments in our solutions and workforce, we drive growth and help our clients make confident decisions for their futures."