Deals like SoFi’s $8.6 billion listing by acquisition back in January and GreenSky’s $2.2 billion sale to Goldman Sachs, announced in September, show that buyers remain interested in consumer lenders with a novel tech proposition. With valuations trailing the robust appreciation in the S&P since Covid, let’s take a look at Houlihan Lokey’s fall update for a deeper dive into sector trends.

For starters, the universe of potential buyers remains deep. While Goldman and SoFi’s SPAC acquirer illustrate the attractiveness of tech-powered lending to established lenders and institutional investors, fintech players are becoming acquisitive in their own right.

SoFi’s $1.2 billion acquisition of payments platform Galileo Financial Technologies last year is potentially instructive. Galileo doubled processed payment volume from September 2019 to March 2020 to $53 billion, a growth trajectory that drew bidder interest.

Valuation presents another potential tailwind. Consumer lenders and commercial finance companies remain cheap relative to S&P 500 constituents, registering post-Covid gains of 24.8 and 22.9 percent respectively versus the index’s 46.2 percent appreciation. That’s likely an incentive for buyers, who’ll note lenders’ current 9.8x LTM (through September) price to earnings compares favorably to the two-year average of 11.7x the same metric. Commercial finance companies are slightly more expensive, registering 16.1x P/E versus a 15.6 two-year average.

The valuation picture gets more complicated net of actual liabilities. The median consumer lender trades at 2.5x book value, well above commercial finance’s 1.7x median figure. Viewing these sectors in aggregate is potentially more misleading than instructive given the substantial variance in target market and tech focus. But the continued pace of deal flow and multiplying array of buyers could offer an opportunity for PE to pick its sweet spots.