Starling Digital Bank Makes First Acquisition Seeking Faster Growth
U.K. digital bank Starling has reached a £ 50million deal for a group of mortgages to let, the first acquisition of the Goldman Sachs-backed start-up which aims for a first public offering within two years.
The cash and stock purchase of Hampshire-based Fleet Mortgages is designed as the first in a series of deals by Starling, which is looking to roll out its £ 6.7bn of deposits and capitalize on its rapid expansion during the coronavirus pandemic, according to people familiar with the matter.
Founded seven years ago, Fleet manages £ 1.75bn in mortgages and expects to generate an additional £ 800m this year. The acquisition would be finalized on Monday, residents said.
Demand for mortgages has increased in the UK over the past 12 months after the government offered buyers temporary stamp duty relief. With millions of people having worked from home since the start of the pandemic, the appetite for large properties outside of city centers has also fueled demand.
However, growing competition among lenders is expected to lower mortgage rates and squeeze bank margins.
As part of the deal, Starling will become the sole funder of Fleet’s rental mortgages to homeowners and Fleet will continue to operate under its own brand. Previously, Fleet financed itself with loans from major British banks.
Starling declined to comment.
Starling said last week that he was on track to reach his first full year of profitability, after his participation in the government’s Covid-19 bailout programs boosted revenues.
Managing Director Anne Boden told the Financial Times that her bank was “standing out” from its start-up peers and was considering an initial public offering in late 2022 or early 2023. Revenue jumped 600% in the past. last year during the pandemic and that made a pre-tax profit of £ 7.3million in the first quarter.
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Starling pursues a more traditional strategy than some fintech peers such as Monzo and Revolut, focusing on building substantial lending business from its own balance sheet.
The bank had only loaned a small amount by the time the pandemic hit, but its loan portfolio has grown from £ 54million to over £ 2.2 billion, mostly through emergency lending for business disruption related to coronavirus and government-backed rebound loans.
Starling is worth more than £ 1bn after raising £ 272m in March, and it drew an additional £ 50m from Goldman in April. Still, that valuation is overshadowed by rival Revolut, which was valued at $ 33 billion after a new investment announced earlier this month.