Social Finance (SoFi), a US online personal finance company, has agreed to merge with Social Capital Hedosophia Holdings Corp. V (SCH), a publicly-traded special purpose acquisition company (SPAC), in a deal worth $8.65bn.
The transaction enables the financial services platform to become a publicly-listed company.
Currently, the member-centric company offers loan refinancing, personal loans, credit cards, mortgages, insurance, investing and deposit accounts.
Since its founding, SoFi is claimed to have catered to over 1.8 million members by enabling them to borrow, save, spend, invest, and protect their money.
The online personal finance company generated more than $200m in total net revenue in Q3 2020. It is said to be poised to make nearly $1bn of estimated adjusted net revenue in 2021, which will be a year-over-year growth of around 60%.
In October 2020, SoFi was granted preliminary, conditional approval from the US Office of the Comptroller of the Currency (OCC) for a national bank charter. If SoFi gets final regulatory approval to own a bank, it is expected to have a reduced cost of funds to further support its growth.
In April 2020, SoFi signed a deal to acquire Galileo Financial Technologies, a US-based financial services API and payments platform, for $1.2bn. In the same month, the company signed another deal to acquire online brokerage firm 8 Securities in a move to foray into Hong Kong.
SoFi’s CEO Anthony Noto will continue to head the company following the transaction.
Noto said: “Our ecosystem of products, rewards and membership benefits all work together to help our members get their money right. With the secular acceleration in digital-first financial services offerings, SoFi is the only company providing a comprehensive solution all in one app.
“The new investments and our partnership with Social Capital Hedosophia signify the confidence in our strategy, the momentum in our business, as well as the significant growth opportunity ahead of us.”
Merger to provide $2.4bn gross proceeds to combined entity
The deal is anticipated to provide gross proceeds of up to $2.4bn to the combined firm. This includes up to $805m of cash held in Social Capital Hedosophia’s trust account from its initial public offering in October 2020.
Furthermore, the combined company is backed by a private investment in public equity (PIPE) of $1.2bn at $10 per share led by Chamath Palihapitiya, the founder and CEO of Social Capital Hedosophia, and Hedosophia.
Funds and accounts managed by BlackRock, Baron Capital Group, Altimeter Capital Management, Coatue Management, Durable Capital Partners, and Healthcare of Ontario Pension Plan (HOOPP) have also committed to the PIPE.
SoFi also secured a previous anchor investment from funds and accounts advised by T. Rowe Price Associates.
Palihapitiya said: “SoFi’s innovative, member-first platform has demystified financial services for millions of Americans and simplified the process for those looking to apply for loans, invest their money, obtain insurance and refinance their debt, among many other tasks that were previously arcane and needlessly complicated.
“Additionally, the acceleration of cross-buying by existing SoFi members has created a virtuous cycle of compounding growth, diversified revenue and high profitability. We look forward to partnering with Anthony and his team as they help even more members to achieve financial independence.”
The merger, which is subject to approval from the shareholders of Social Capital Hedosophia, applicable regulatory approvals, and other customary closing conditions, is expected to close in Q1 2021.
