LendingTree (TREE 217.03, +6.40, +3.04%) announced another acquisition last night after
the close. It will acquire QuoteWizard.com, one of the largest insurance
comparison marketplaces in the growing online insurance advertising market.
QuoteWizard has helped nearly 40 mln consumers find their ideal insurance policy
with top-tier insurance carriers across key insurance markets: auto, home, and
TREE primarily operates through its LendingTree.com segment. It's an online loan marketplace where consumers can do comparison shopping for loans. Basically, consumers visit the site and enter data about themselves and state what kind of loan they are looking for. Lenders then compete to provide loans at the best rates and TREE receives a fee for each lead.
LendingTree doesn’t charge consumers or small businesses anything. Revenue from its mortgage products are mostly derived from upfront match fees paid by Network Lenders that receive a loan request. Because a given loan request form can be matched with more than one Network Lender, up to five match fees may be generated from a single consumer loan request form. Revenues from its non-mortgage products are derived from upfront match fees paid on delivery of a loan request, click or call and closed loan fees. For its credit card product, TREE sends click traffic to issuers and are paid per card approval.
TREE does not take the loan risk itself, it's more of a lead generator for lending institutions which pay a fee to TREE. Most of its business is for mortgages but it has been branching into other non-mortgage credit categories as well: home equity loans/lines of credit, personal loans, credit cards, auto loans, student loans etc.
So why did TREE make this purchase? The idea is that, by acquiring QuoteWizard, LendingTree will establish itself as a leading player in the online insurance advertising industry. QuoteWizard has a proprietary technology platform, direct relationships with over 30 of the top-tier carriers and a network of nearly 10,000 agents. When combined with LendingTree's strong brand and extensive reach, TREE expects to be well-poised to capitalize on the growing market opportunity.
The equity purchase has a possible total consideration of $370.2 mln, which consists of $300 mln in cash at closing and contingent payments of up to $70.2 mln, subject to achieving certain growth targets over a three-year period. The acquisition is expected to close in Q4. In 1H18, QuoteWizard generated $75.6 mln in revenue and $12.8 mln in adjusted EBITDA. LendingTree expects the acquisition to be accretive to 2019 adjusted EPS.
In sum, one of TREE's main goals over the past few years has been to diversify away from the mortgage business. While mortgages are still a good business for them and core to their identity, the mortgage business can be boom-bust at times, especially when interest rates are rising as is the case now. By diversifying into other financial services categories, TREE is able to better manage the ups and downs of its core mortgage business.
Today's deal is the latest in a series of acquisitions by TREE to diversify into the financial services sector more broadly. In July 2018, LendingTree closed on its previously announced acquisition of Student Loan Hero, a personal finance website dedicated to helping student loan borrowers manage their student debt. In June 2018, TREE acquired Ovation Credit Services, a provider of credit services.
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