8-K: OppFi Expands into Small Business Financing with Acquisition of Bitty Equity Stake

OppFi has strategically acquired a 35% equity interest in Bitty, a credit access company, marking its entry into the small business financing market.

Summary

• OppFi has acquired a 35% equity stake in Bitty, a company providing revenue-based financing and working capital solutions to small businesses.
• The acquisition includes options for OppFi to increase its ownership to a majority stake in 2027 and full ownership in 2030.
• The purchase price consisted of approximately $15.25 million in cash and 734,851 Class A Common Units of OppFi-LLC, valued at about $2.7 million.
• Bitty has facilitated over $420 million in funding to more than 29,000 small businesses since 2020, with financing amounts ranging from $2,000 to $250,000.
• The transaction implies a 6.0x purchase multiple on Bitty's adjusted net income for the trailing twelve months ending March 31, 2024.
• OppFi anticipates the acquisition will contribute approximately $0.03 in adjusted earnings per share on an annualized basis.
• The total addressable market for non-bank and online lenders for small businesses is estimated to be around $550 billion per year.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the strategic acquisition, expected earnings accretion, and the potential for growth in the small business financing market. The language used is optimistic and forward-looking.

Positives

• The acquisition allows OppFi to enter the small business financing market, diversifying its revenue streams.
• Bitty is a profitable and growing platform with a strong operating margin of over 25%.
• The transaction is expected to be immediately accretive to OppFi's earnings.
• Bitty has a proven track record of providing credit access to underserved small businesses.
• Craig Hecker, an industry leader, will continue to operate Bitty as CEO, ensuring continuity and expertise.

Risks

• The document mentions general economic conditions, inflation, interest rate changes, and recessions as potential risks.
• There are risks related to the material weakness in OppFi's internal controls over financial reporting.
• The company faces risks related to evaluating and potentially consummating acquisitions.
• There are risks related to OppFi's ability to comply with various covenants in its credit facilities.
• The company faces risks related to management transitions and the restatement of financial statements.

Future Outlook

OppFi has options to acquire an additional 30% equity interest in Bitty in 2027 and the remaining equity interest in 2030. The company expects to continue evaluating strategic acquisition opportunities in new and existing verticals to further facilitate credit access.

Management Comments

• Todd Schwartz, Chief Executive Officer and Executive Chairman of OppFi, stated that Bitty provides the foundation for OppFi's new vertical in small business financing and aligns with their mission to facilitate credit access to everyday Americans.
• Craig Hecker, CEO of Bitty, expressed excitement about partnering with OppFi and leveraging its track record to grow Bitty.

Industry Context

This acquisition reflects a broader trend of fintech companies expanding into underserved markets, particularly small business financing, which is increasingly being originated online. The document notes that 71% of medium to high credit risk small businesses apply to non-bank lenders, highlighting the opportunity in this sector.

Comparison to Industry Standards

• The document cites a Consumer Financial Protection Bureau research indicating approximately $550 billion in annual non-bank and online lender financing for small businesses, suggesting a large market opportunity.
• The 6.0x purchase multiple on adjusted net income is a common valuation metric used in the financial services industry.
• The document references the U.S. Small Business Administration's estimate of 33 million small businesses, indicating the scale of the market.
• The Federal Reserve's study showing 71% of medium to high credit risk small businesses applying to non-bank lenders highlights the demand for alternative financing options.

Management Changes

Stakeholder Impact

• Shareholders: The acquisition is expected to be accretive to earnings, potentially increasing shareholder value.
• Employees: The acquisition may create new opportunities for employees of both OppFi and Bitty.
• Customers: Small businesses will have access to a broader range of financing options.
• Community Banks: OppFi's platform broadens the reach of community banks to extend credit access.

Next Steps

• OppFi will integrate Bitty into its platform and leverage its data analytics, automation, and marketing expertise to scale the business.
• OppFi will evaluate strategic acquisition opportunities in new and existing verticals.
• OppFi management will discuss the details of the transaction during the second quarter 2024 earnings conference call on August 7, 2024.

Key Dates

Keywords

small business financing, credit access, revenue-based financing, working capital, acquisition, OppFi, Bitty, fintech, non-bank lending, online lending