Private Nonbank Lender Valuation

McPhereson's picture
Rank: Chimp | banana points 7

Happy New Year!

(1) I have an PE interview coming up where I have been asked to consider investing in a fintech private nonbank lender (think prosper, commonbond, etc.). Any ideas which valuation methods would work best for these guys? What multiples would you use?

(2) Judging from their public peers like Lending club and OnDeck, these guys have loans and debt on their balance sheet, which I was thinking of using an equity multiple (like P/E) for comparison but then that just gives me implied market value of equity. When I try to calculate MoM and IRR returns, can I directly use this implied equity value and calculate distributions and ignore incorporating Debt and Cash? (Since this is just an investment, not a LBO and has no leverage included)

(3) Where can I find a sample PE model where Equity multiple is used in return analysis? (Assuming this is the right approach)

Thank you so much!!!!

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Comments (4)

Jan 2, 2018


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Jan 2, 2018

Are they are a pure play lender or do they have a fee/commission business as well?

In case of a pure play lender, you would generally value it on a P/BV or P/NAV basis, where you look at (1) RoE and (2) loan book growth (potential). The rationale here is that (1) shows you how profitable the business really is and (2) the potential for growth.

In case of a mixed business, I would suggest a SOTP approach where you value the lending stream as prior paragraph, and the fee business using an EBITDA or (preferably) FCFF approach.

Good luck


Jan 2, 2018

Like many of their peers, they securitize and sell their loans after they originate it. Is it best to value their loan sales from Net Interest Income separately then as you had mentioned? Would you happen to have an example of how this is done from a PE investment approach? Thank you!

Jan 22, 2018