Jan 25, 2022 - Economy

The Robinhood M&A rumor mill churns

Illustration of the Wall Street sign with a Robinhood sign behind it

Illustration: Sarah Grillo/Axios

Robinhood's valuation is now just over $11 billion, a fraction of where it traded in August and below that of its last private round of funding. Cue the M&A mongers.

Why it matters: It's not just Robinhood—falling values of growth-oriented tech stocks have raised speculation that formerly high-flying fintechs could be snapped up by more well-capitalized buyers.

  • There's speculation, too, of some '21 deals needing re-pricing.

One extreme example: Insurtech Lemonade agreed to acquire Metromile in an all-stock deal valued around $500 million — including the latter's $250 million cash coffers — in early November.

  • That deal was already considered a discount to Metromile's valuation when it agreed to go public via merger with a SPAC in 2020: $1.3 billion.
  • But at Lemonade's closing price Monday, the insurtech company would be paying roughly $202 million for all that — less than the amount of cash Metromile holds.
  • Even assuming the latter's tech is entirely worthless, Lemonade would effectively be paying 81 cents for each hard dollar.

Context: Investors are cycling out of riskier assets and into more traditional ones amid concerns of rising interest rates. While Cathy Woods' ARK Fintech Innovation ETF is down about 44% in the last year, the KBW Bank Index—which tracks large banks—is up about 29%.

Yes, but: Investors pushing fintechs to sell to a buyer and recoup their losses could face an uphill battle because of that not-so-little thing called super-voting shares. Robinhood founders Vlad Tenev and Baiju Bhatt control about 65% of the company.

  • But that's not true for all fintechs — Toast for instance does not have super-voting shares, nor do Lemonade and Upstart.
  • And though going it alone is the choice du jour among startups, acquisitions do happen. Mastercard for example snapped up Finicity in 2020. Plaid too almost partnered up with Visa, before the DoJ came knocking.

What they're saying: Back to Robinhood, Bloomberg opined recently that it's becoming an M&A target.

  • "Wow at this rate, Microsoft could add Block ($48B), Affirm ($14B) and Bill.com ($15B) to their cart for not much more than Activision ($70B) and get themselves on their way to building a decent [fifth] payment network option and a major business fintech roll-up," Trust SVP of Finance Samir quipped.

The bottom line: The chances of a Robinhood or other stronger fintech businesses selling is slim at the moment, but the longer and deeper the route persists, the more likely it is that we'll see M&A and repricing titters crystalize.

Lucinda and Ryan Lawler co-author our new Axios Pro newsletter on fintech deals. Subscribe at AxiosPro.com.

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