British digital lender Starling Bank has struck a £50m deal for specialist buy-to-let mortgage lender Fleet Mortgages, in the first of an expected series of deals to drive growth.
Starling, which last week said it was eyeing an IPO over the next two years, has finalised the cash and share deal for Hampshire-based Fleet Mortgages, for whom it will become the sole funder of mortgages to landlords.
The challenger bank – which has £6.7bn of deposits and last week reported 600 per cent revenue growth during the pandemic – said the acquisition was “part of a wider plan to expand lending” and targeted M&A activity.
“The acquisition of Fleet Mortgages is the start of our move into mortgages as an asset class and builds on a number of forward-flow arrangements that we’re doing with leading non-bank lenders,” said founder and CEO Anne Boden.
Founded in 2014, Fleet Mortgages currently manages around £1.75bn of mortgages and anticipates originating another £800m this year.
As part of the deal, Fleet will continue to operate under the same name and brand, and retain its management team.
Fleet Mortgages CEO Bob Young said the acquisition would allow the company to focus on its “significant and ambitious lending and growth targets” and “provides us with a very strong lending base from which to work and to deliver for our staff, our adviser partners and our landlord customers.”
Before the deal, Fleet financed its operations with loans from UK banks.
The deal comes a few days after Starling said it was on track for full-year profitability in a trading update, after revenues jumped 600 per cent to £97.6m from £14m in its 2019 results.
Starling has benefited from a surge in business lending helped by its participation in the government’s coronavirus support scheme, and its gross lending is now £2.2bn, with deposits of £5.8bn.
The bank’s books have expanded as customer account numbers more than doubled to 2.1m, which it said led the bank to break even for the first time in October 2020.
Since then, it’s been one of the few challenger banks that has made a profit each month.
Last week, founder and CEO Anne Boden said she could float the bank by the end of 2022 or in early 2023 but was not going to rush into a flotation, despite the UK government’s proposed easing of rules to make London IPOs easier for fintechs like Starling.
“We’re going to do it in our time,” she said. “We’re not going to be forced to do it because it’s fashionable at the moment.”
Earlier in the year, Starling announced it had secured a £50m investment from Goldman Sachs in its latest funding round – bringing its valuation to just over £1bn.