Propel blasts past fellow tech IPO boom laggards with U.K. acquisition and $100-million bought deal

Propel Holdings Inc. PRL-T was one of the last Canadian technology companies to go public before a boom for new issues cratered in the fall of 2021 during the height of the pandemic. It also raised one of the smallest amounts of the 20 initial public offerings of the era, bringing in $70-million.

Today, the Toronto financial-technology company holds a different distinction: Propel’s stock has outperformed every other IPO of that vintage by a wide margin. Propel stock has increased by 186 per cent since its October, 2021, IPO at $9.75 a share.

The next best performer is Magnet Forensics, which was taken private last year up 160 per cent from its IPO. Dye & Durham Ltd. DND-T is up 105 per cent, then Nuvei Corp. NVEI-T (73 per cent) and MDA Space Ltd. (21 per cent).

Otherwise, it’s been carnage. The rest are underwater including seven that exited the public markets. And unlike the few gainers that hit their highs long ago before tumbling, most of Propel’s gains came this year.

Propel, which now sports a market capitalization of $1-billion, has been profitable for years, unlike most technology companies. It pays a dividend, which is even rarer – and has increased the payout in five of the past six quarters.

Its US$316.5-million revenue in 2023 was more than four times higher than in 2020, while net income rose by nearly the same rate. Revenue in the first half of 2024 is up by 48 per cent. Net income is up 85 per cent, to US$24.2-million.

Now, Propel is taking advantage of its momentum. On Thursday, the company announced its first acquisition, a US$71-million purchase of Britian-based fintech lender Stagemount Ltd., known as QuidMarket.

“We’re serious about our ambitions to grow Propel into the leading fintech provider of credit to underbanked and underserved consumers across the globe,” chief executive officer Clive Kinross said in an interview.

To finance the deal, Propel announced a $100-million bought deal led by Canaccord Genuity Corp. and Scotia Capital Inc. The stock fell 10 per cent Friday to $27.91 after the financing was priced at $27.50 per subscription receipt (exchangeable for stock once the acquisition closes). But it has still more than doubled this year.

“We felt confident the market would receive this transaction well,” said Len Saucer, Canaccord Genuity’s managing director, head of equity capital markets. “This has been a very good success story in the Canadian capital markets.” Propel said the financing was two-times oversubscribed with three-quarters of demand coming from institutional accounts.

The bought deal is a promising sign for capital markets as interest rates fall. Excluding the Propel deal, there have been 17 equity financings by Canadian tech companies this year, raising $549-million. That’s up from $459-million across 20 deals in all of 2023, and $228-million from 23 deals in 2022. There was $15.1-billion raised from 124 tech deals in 2021.

Propel was co-founded 13 years ago by Mr. Kinross, a South African expatriate who previously built and sold an online used-vehicle exchange called OPENLANE, Inc.. His co-founders are still with Propel – chief financial officer Sheldon Saidakovsky, executive vice-president Noah Buchman and chief risk officer Jonathan Goler – as is most of the original management team.

Backed by $4-million in capital from family and friends – including chairman Michael Stein, former CEO of Canadian Apartment Properties REIT – Propel set out to provide credit to the tens of millions of North Americans who had trouble qualifying for bank loans but didn’t want to use expensive alternatives such as payday lenders.

Propel developed a platform that uses artificial intelligence and machine learning to ingest 5,000 data points from an array of sources to assess more than 50,000 applications that now come in online daily and automatically spit out offers or rejections in six seconds.

Propel offers instalment loans and lines of credit directly to consumers online through its MoneyKey and CreditFresh services, and partners with banks, both to provide loans to their customers and back-office services in support of their lending operations.

Propel customers can pay upward of 100 per cent interest on an annualized basis for instalment loans and credit lines that typically range in size from US$800 to US$10,000, which is still less expensive than payday loans.

Propel’s loan-loss provisions hover at around 50 per cent at origination, though net charge-offs have fallen to 11 per cent in the second quarter from 37 per cent of total loans and advances in 2018. Propel also offers a “graduation” program where customers who pay off their loans can access larger amounts at lower rates.

Propel was making money on its loans after two years and raised debt capital to finance its book. By 2021 it had built out its infrastructure and had the capability to forecast reliably and accurately, and went looking for growth capital. It raised US$15-million from fintech financier Raptor Holdings, then went public that October.

It was a time of freewheeling IPOs where unprofitable, fast-growing tech companies were raising money at big valuations, but Propel wasn’t like that.

“I’ve always run businesses in a very disciplined way,” the 54-year-old Mr. Kinross said. Now, in 2024, with many public tech companies eyeing the exits, he sees no reason to sell out. He thinks Propel can double and double again over the next few years. “If I believe that, which I do, why would I be interested in selling now? I’d get a small premium but that is not what the business will ultimately be worth.”

Instead, he’s spent two years eyeing exploring potential acquisitions. Mr. Kinross looked at more than 30 companies, honing in on Britain because the market dynamics looked similar to North America. In QuidMarket, he saw a a good fit: lt was lean, fast growing and profitable, with net earnings of US$9.6-million in the year ended June 30, on revenue of US$27.7-million.

“They’re humble, hard working, conscientious and very focused on providing outstanding consumer outcomes, all of which is similar to us,” he said.