Ally Financial to buy CardWorks for $2.65bn, shares fall 10%

Written by Ruby Hinchliffe
20th February 2020

Ally Financial, the online bank, lender and trading platform, has announced it’s buying subprime lender CardWorks for $2.65 billion.

Following the announcement on 18 February, the Michigan-based auto lender’s shares fell more than 10%.

Ally is predominantly an auto lender

It is paying $1.35 billion in cash and 39.5 million shares for CardWorks, in a bid to diversify its product offering by “adding an established credit card platform […] and a nationwide merchant acquiring business” to its armory. Ally believes the purchase will also enhance its return profile and “immediately” improve revenue generating capabilities.

The deal grows Ally’s user base to 11 million across 50 US states. But why are shareholders skeptical of the deal? It is a pricey acquisition considering CardWorks, with $4.7 billion in assets, is valued at around 1.8 times net tangible equity.

It is also a bold move away from auto lending into the credit card and merchant acquiring space, so shareholders may also be waiting to see how well the company manages to integrate CardWorks into its current play.

“This acquisition serves as an important milestone in Ally’s evolution to be a full-service financial provider for our customers,” says Ally’s CEO Jeffrey Brown in a statement. “Beyond the compelling strategic rationale and financial enhancements this transaction brings, CardWorks is an ideal cultural fit for Ally.

“Both companies share a deep-rooted history of disciplined risk management and an obsession over the customer. I’m thrilled to welcome CardWorks to the Ally team and look forward to adding value for all of our stakeholders,” Brown adds.