Pagaya plans M&A foray with $75M Oak HC/FT investment

Publicly traded credit analysis firm Pagaya (Nasdaq: PGY) plans to go shopping for other fintechs after securing a new $75 million investment from longtime-backer Oak HC/FT, the company tells Axios exclusively.

Why it matters: The investment will give Pagaya dry powder to make acquisitions in a buyer's market for fintech deals.

Details: With its investment, Oak HC/FT will receive Series A convertible preferred stock with a 6% PIK annual dividend and an additional minimum return in certain circumstances.

• According to Pagaya CFO Michael Kurlander, the conversion price is $1.25, or about a 35% premium to yesterday’s close.
• Notably, the preferred shares will not have any special governance or voting rights.

State of play: Pagaya’s market cap has plummeted since going public via SPAC merger at an $8.5 billion valuation last June, landing at about $620 million at the close of trading Wednesday.

• But, according to CEO Gal Krubiner, the same dynamics that have slammed Pagaya's valuation have also created attractive buying opportunities in the venture-backed fintech market.
• “The valuation of companies is declining, the amount of funding is very low… and we think there is a unique opportunity to extend M&A and approach good, founder-led companies with unique capabilities that are struggling a little bit with funding in these markets and get them under the Pagaya umbrella,” Krubiner says.

Between the lines: Pagaya is looking for companies that operate in categories where it doesn’t currently have a presence, like mortgages or solar loans.

• It’s also looking at potential acquisitions of embedded finance solutions that could make it easier for Pagaya to work with banks and other lenders to extend credit.

The big picture: While the current macro environment has hit Pagaya’s valuation, the prevalence of high interest rates has not dramatically slowed down its credit analysis business.

• Along with the Oak HC/FT transaction, the company is reporting that it expects to be at the high end of or exceed its first-quarter guidance for network volume, total revenue and adjusted EBITDA.
• “We actually see more applications, we see more flow, and we're becoming more relevant for lenders to solve their liquidity problems,” Krubiner says.

Context: OakHC/FT has been an investor in Pagaya since it co-led the then-startup’s $14 million Series B funding round in 2018.

• According to an SEC filing, the firm owned approximately 13.5% of Pagaya Class A shares shortly before the SPAC merger was completed.
• Post-transaction, it will hold about 16% of Pagaya’s basic outstanding shares, Kurlander says.