OneMain Holdings Inc (NYSE: OMF) stock jumped by 11% as of 11:15 a.m. EDT after the Wall Street Journal broke the news that the company is putting itself up for sale. The WSJ wrote that OneMain is in "advanced discussions with a number of interested parties," including rival lenders and private equity firms, citing people familiar with the matter.
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OneMain Holdings is itself the product of a merger between OneMain, which was once a subsidiary of Citigroup, and Springleaf Financial, a portfolio company of private equity shop Fortress Investment Group (NYSE: FIG). Fortress owns about 55% of the combined company today.
The deal between Springleaf and OneMain brought with it economies of scale, allowing the combined company to finance its portfolio less expensively, and eliminate some duplicated branches to reduce its operating costs. Its operating expense ratio, a measure of its operating expenses divided by its loan portfolio, fell from 10.3% in the first quarter of 2016 to 8.9% in the second quarter of 2017.
OneMain has an attractive branch network to originate loans, operating out of roughly 1,700 locations across the United States. Most of its loans are personal loans to help consumers meet their own liquidity needs, as only 40% of the portfolio was secured by a car or other piece of personal property at the end of the second quarter.
Tight credit spreads and loose terms in the corporate debt markets make OneMain a potentially attractive acquisition for creative acquirers, particularly for private equity firms, which are enjoying some of the loosest terms on acquisitions not seen since the buyout boom of the mid-2000s.
At Friday's market capitalization of approximately $4 billion, any acquirer would be paying a rich premium for the company. The company last reported having tangible common equity of approximately $1.27 billion, thus implying any transaction would occur at a price higher than three times tangible book value after a deal premium is taken into consideration.
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