OppFi Acquires Equity Interest in Bitty, Enters Small Business Financing Market

Rhea-AI Summary

OppFi Inc. (NYSE: OPFI) has acquired a 35% equity interest in Bitty Advance, a profitable and growing platform that provides credit access to underserved small businesses. The transaction implies a 6.0x purchase multiple on adjusted net income for the trailing twelve months ending March 31, 2024, and is expected to be immediately accretive to OppFi earnings. Bitty, led by industry leader Craig Hecker, has facilitated funding to over 29,000 small businesses since 2020, with products ranging from $2,000 to $250,000.

The acquisition aligns with OppFi's mission to facilitate credit access to everyday Americans and provides a foundation for OppFi's new vertical in small business financing. OppFi anticipates that Bitty would contribute approximately $0.03 in adjusted earnings per share to its consolidated results on an annualized basis.

Positive

• Acquisition of 35% equity interest in Bitty Advance, a profitable and growing platform
• Transaction expected to be immediately accretive to OppFi earnings
• Expansion into small business financing market with a total addressable market of approximately $550 billion per year
• Anticipated contribution of $0.03 in adjusted earnings per share to OppFi's consolidated results
• Options for OppFi to obtain majority and total ownership of Bitty over time

Negative

• None.

Insights

Financial Analyst

The acquisition of a 35% equity stake in Bitty by OppFi marks a strategic expansion into the small business financing market. This move is financially prudent, with the transaction implying a 6.0x purchase multiple on adjusted net income for the trailing twelve months ending March 31, 2024. The deal structure, including options for majority and total ownership over time, allows OppFi to mitigate risk while gaining exposure to a new vertical.

Financially, the immediate impact is positive, with OppFi anticipating an accretive effect of approximately $0.03 in adjusted earnings per share on an annualized basis. This suggests a modest but meaningful contribution to OppFi's bottom line. The small business financing market's substantial size, estimated at $550 billion per year for non-bank and online lenders, presents significant growth potential.

However, investors should note that while the acquisition aligns with OppFi's mission and expands its addressable market, it also introduces new risks associated with small business lending. The success of this venture will largely depend on OppFi's ability to leverage its existing strengths in data analytics and automation to scale Bitty's operations efficiently.

Market Research Analyst

OppFi's acquisition of Bitty represents a strategic market entry into the burgeoning small business financing sector. With an estimated 33 million small businesses in the U.S. and 71% of medium to high credit risk applicants turning to non-traditional lenders, this move positions OppFi to tap into a vast, underserved market.

The shift towards online origination in small business financing aligns perfectly with Bitty's digital platform, potentially giving OppFi a competitive edge in this space. Moreover, Bitty's track record of facilitating funding to over 29,000 small businesses since 2020 demonstrates a proven market fit and scalability.

However, the small business financing market is highly competitive and potentially volatile, especially in uncertain economic conditions. OppFi will need to differentiate its offerings and maintain robust risk management practices to succeed. The partnership with industry veteran Craig Hecker could prove important in navigating this new terrain.

Overall, this acquisition represents a calculated diversification of OppFi's business model, potentially opening up new revenue streams and growth opportunities. The success of this venture could significantly impact OppFi's market position and valuation in the coming years.

Tech Expert

OppFi's acquisition of Bitty marks a significant technological expansion for the company. By integrating Bitty's digital platform for small business financing, OppFi is positioning itself at the intersection of fintech and small business services - a rapidly growing sector.

The key to success in this venture will be OppFi's ability to leverage its existing technological capabilities, particularly in data analytics and automation, to enhance Bitty's operations. This synergy could potentially lead to more sophisticated underwriting models, improved customer acquisition strategies and streamlined operations.

However, integrating different tech stacks and scaling a platform to handle increased demand can be challenging. OppFi will need to ensure seamless integration while maintaining the agility and innovation that characterize successful fintech operations.

The move towards online origination in small business financing aligns well with broader digital transformation trends in the financial services industry. If executed well, this acquisition could position OppFi as a tech leader in both consumer and small business alternative lending, potentially opening doors for further technological innovations and market expansions.

• Led by proven operator and industry leader Craig Hecker, Bitty is a profitable and growing platform that provides credit access to underserved small businesses
• The transaction implies a 6.0x purchase multiple on adjusted net income for the trailing twelve months ending March 31, 2024 and is expected to be immediately accretive to OppFi earnings
• OppFi expects to continue evaluating strategic acquisition opportunities in new and existing verticals to further facilitate credit access

CHICAGO--(BUSINESS WIRE)-- OppFi Inc. (NYSE: OPFI) (“OppFi” or the “Company”), a tech-enabled, mission-driven specialty finance platform that broadens the reach of community banks to extend credit access to everyday Americans, today announced its strategic acquisition of a 35% equity interest in Bitty Advance, including its servicing business (collectively “Bitty”). The transaction includes options for OppFi to obtain majority and total ownership over time.

Bitty is majority controlled by Craig Hecker, an industry leader and serial entrepreneur in the small business financing market, who will continue to operate the business as Chief Executive Officer. Bitty is a credit access company that offers revenue-based financing and other working capital solutions. Since 2020, Bitty has facilitated funding to more than 29,000 small businesses across the United States, with products ranging from $2,000 to $250,000.

“We’re excited by this acquisition, as we believe Bitty provides the foundation for OppFi’s new vertical in small business financing,” said Todd Schwartz, Chief Executive Officer and Executive Chairman of OppFi. “Bitty facilitates credit access to small businesses that are not served by traditional banks, aligning with our mission to facilitate credit access to everyday Americans. Small business financing is increasingly being originated online, and we believe Bitty’s digital platform is well-positioned to capture this growth. We look forward to working with Craig and his team to further scale Bitty with OppFi’s data analytics, automation, and marketing expertise.”

The U.S. Small Business Administration estimates there are 33 million small businesses, and a study by the Federal Reserve indicates approximately 71% of medium to high credit risk small business applicants for a loan, line of credit, or merchant cash advance applied to a non-bank financing company, online lender, or community development financial institution. The total addressable market for non-bank and online lenders for small businesses is approximately $550 billion per year, based on research from the Consumer Financial Protection Bureau.

“I’m thrilled by this opportunity to partner with OppFi and leverage its successful track record as we strive to take Bitty to the next level of growth,” said Craig Hecker. “I admire OppFi’s vision of building a multi-product, multi-customer platform that facilitates credit access to those not served by traditional banks.”

On an annualized basis, OppFi anticipates that Bitty would contribute approximately $0.03 in adjusted earnings per share to the consolidated results of OppFi.

OppFi has the option to acquire an additional 30% equity interest for majority ownership of Bitty in 2027 and the option to acquire the remaining equity for total ownership of Bitty in 2030.

Additional details regarding this transaction are included in the Company’s Form 8-K to be filed today with the U.S. Securities and Exchange Commission. OppFi management plans to discuss those details and answer investor questions during the previously announced second quarter 2024 earnings conference call on Wednesday, August 7, 2024 at 9:00 a.m. ET.

Moelis & Company served as financial advisor and Sidley Austin LLP served as legal counsel to OppFi.

About OppFi

OppFi (NYSE: OPFI) is a tech-enabled, mission-driven specialty finance platform that broadens the reach of community banks to extend credit access to everyday Americans. Through a transparent and responsible lending platform, which includes financial inclusion and an excellent customer experience, the Company supports consumers, who are turned away by mainstream options, to build better financial health. OppLoans by OppFi maintains a 4.5/5.0 star rating on Trustpilot with more than 4,400 reviews, making the Company one of the top consumer-rated financial platforms online. For more information, please visit oppfi.com.

Forward-Looking Statements

This press release includes “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. OppFi’s actual results may differ from its expectations, estimates and projections and consequently, you should not rely on these forward-looking statements as predictions of future events. Words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “possible,” “continue,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These forward-looking statements include, without limitation, the impact of the Bitty investment on OppFi’s business; OppFi’s ability to scale and grow the Bitty business; statements regarding future acquisitions, the future performance of OppFi’s platform, and expectations for OppFi’s growth, new products, and future financial performance. These forward-looking statements are based on OppFi’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside OppFi’s control and are difficult to predict. Factors that may cause such differences include, but are not limited to: the impact of general economic conditions, including economic slowdowns, inflation, interest rate changes, recessions, and tightening of credit markets on OppFi’s business; the impact of challenging macroeconomic and marketplace conditions, including lingering effects of COVID-19 on OppFi’s business; the impact of stimulus or other government programs; whether OppFi will be successful in obtaining declaratory relief against the Commissioner of the Department of Financial Protection and Innovation for the State of California; whether OppFi will be subject to AB 539; whether OppFi’s bank partners will continue to lend in California and whether OppFi’s financing sources will continue to finance the purchase of participation rights in loans originated by OppFi’s bank partners in California; OppFi’s ability to scale and grow the Bitty business; the impact that events involving financial institutions or the financial services industry generally, such as actual concerns or events involving liquidity, defaults, or non-performance, may have on OppFi’s business; risks related to the material weakness in OppFi’s internal controls over financial reporting; the ability of OppFi to grow and manage growth profitably and retain its key employees; risks related to new products; risks related to evaluating and potentially consummating acquisitions; concentration risk; risks related to OppFi’s ability to comply with various covenants in its corporate and warehouse credit facilities; costs related to the business combination; changes in applicable laws or regulations; the possibility that OppFi may be adversely affected by other economic, business, and/or competitive factors; risks related to management transitions; risks related to the restatement of OppFi’s financial statements and any accounting deficiencies or weaknesses related thereto; and other risks and uncertainties indicated from time to time in OppFi’s filings with the United States Securities and Exchange Commission, in particular, contained in the section or sections captioned “Risk Factors.” OppFi cautions that the foregoing list of factors is not exclusive, and readers should not place undue reliance upon any forward-looking statements, which speak only as of the date made. OppFi does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based.

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Investor Relations:

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Source: OppFi

FAQ

What percentage of Bitty Advance did OppFi acquire?

OppFi acquired a 35% equity interest in Bitty Advance.

How much is the Bitty acquisition expected to contribute to OppFi's earnings?

OppFi anticipates that Bitty would contribute approximately $0.03 in adjusted earnings per share to its consolidated results on an annualized basis.

What is the size of the small business financing market that OppFi is entering with this acquisition?

The total addressable market for non-bank and online lenders for small businesses is approximately $550 billion per year, according to research from the Consumer Financial Protection Bureau.

When does OppFi have the option to acquire majority ownership of Bitty?

OppFi has the option to acquire an additional 30% equity interest for majority ownership of Bitty in 2027.