Lemonade’s plan to snatch up Metromile isn’t necessarily a one-off InsurTech M&A deal. Many more in the sector are likely in the future, particularly with newly-public startups burdened by anemic stock prices, according to a new S&P report.
The report notes that out of a dozen InsurTech companies that completed an IPO or special purpose acquisition company/reverse merger on a major U.S. exchange since the start of 2020, just three were above water as of Nov. 8. With that in mind, S&P predicts the trend will fuel more mergers well past Lemonade and Metromile’s as acquirers look for bargains.
As S&P noted, Metromile, for example, was valued at just under $1 billion at the time of its SPAC announcement in November 2020. Lemonade gets to acquire it for a bargain, in an all-stock transaction with a fully diluted equity value of $500 million, or just over $200 million net of cash.
Companies with stocks that plummeted like Metromile’s might also look for a buyer themselves, S&P said. As well, InsurTech startups still private might sell their companies rather than face the risks of going public. Metromile’s stock closed at $3.16 when Lemonade’s acquisition plans were announced on Nov. 8. Lemonade, in turn, closed at nearly $71 per share, and the company’s stock price has remained fairly consistent since its IPO.
Newly-public P/C InsurTechs whose stock has been underperforming include Root and Hippo, S&P noted.
As of Nov. 8, Root’s stock price was $4.90 per share, nearly 82 percent below its IPO debut in October 2020, S&P pointed out. Hippo closed at $4.18 per share on Nov. 8, down close to 60 percent from its SPAC debut only in August 2021. Metromile’s stock price a little above $3 per share was close to 70 points below its SPAC debut in February 2021.
The full report, from S&P Market Intelligence is “More M&A likely for U.S. InsurTechs, following Lemonade/Metromile tie-up.”
Source: S&P Market Intelligence