Auto lender Ally Financial has agreed to buy consumer finance lender CardWorks for $2.65 billion.
The deal includes $1.35 billion in cash and $1.30 billion in Ally common stock. CardWorks has $4.7 billion in assets and $2.9 billion in deposits.
In a statement, Ally said the deal would provide “instant capability and scale opportunity” in credit cards and merchant services and would improve its return on tangible common equity by about 100 to 150 basis points for 2021 and 2022. It said the transaction could increase its adjusted profit by up to a percentage point by 2022.
Under the terms of the deal, Merrick Bank, a subsidiary of CardWorks, will merge into Ally Bank. CardWorks chief executive Don Berman, who owns 70% of the company, will join Ally’s board of directors and become a member of its executive management team. He will continue to act as CEO of CardWorks.
“The combined company will be well positioned to meet the financial needs of our ever-growing customer base and deliver sustainable growth and performance,” said Berman.
Ally said it expected immediate enhancements of its revenues. Its common equity tier 1 capital ratio would remain largely unchanged, it said.
“This acquisition serves as an important milestone in Ally’s evolution to be a full-service financial provider for our customers,” Ally chief executive Jeffrey Brown said in statement. “Beyond the compelling strategic rationale and financial enhancements this transaction brings, CardWorks is an ideal cultural fit for Ally.”
In a note to clients, Piper Sandler analyst Kevin Barker said Ally was paying a “steep price” to diversify its product offering. He said he would have preferred to see the company build its card business organically or deploy capital elsewhere.
CardWorks had previously received investments from Pacific Investment Management, Parthenon Capital Partners and Reverence Capital Partners.
The deal is expected to close in the third quarter of 2020.
Ally shares were down more than 11% in midday trading Wednesday following the news.