Squirrel Group to launch $5m private equity crowdfunding offer

Mortgage broker and peer-to-peer lender Squirrel Group is launching a $5 million equity crowdfunding private offer today, in what's likely to be its last capital-raising before an intended sharemarket listing next year.

The capital raised will be used to build its mortgage broking business, Squirrel Mortgages, and develop the country's second peer-to-peer lending business, Squirrel Money, which launched in November last year. The offer effectively values the eight-year-old company at $22.9 million.

Equity crowdfunding platform Snowball Effect said the offer had received significant pre-registered interest from Squirrel's network. Given it's a private offer, details won't be publicly available on the platform.

Squirrel chief executive John Bolton said there had been $4 million of pre-registered interest from Squirrel's 10,000-strong customer base who are likely to fill the $2 million available through the retail side of the offer. Wholesale investors will be targeted for the remaining $3 million sought in the offer which is open for three weeks. The company is issuing five million shares at $1 apiece.

The $22.9 million valuation comprises $20 million for the Squirrel Mortgages business and just $2.9 million for Squirrel Money. Tenansee, which is a software-as-a-service company for landlords, has also been included in the group though it's still in beta phase.

Mr Bolton said while the valuation may appear to be on the high side, there are two quite different businesses involved. The mortgage broking company is forecast to have strong growth while the unprofitable peer-to-peer business is still in start-up phase.

Squirrel Mortgages generated $548,000 of earnings before interest, tax, depreciation and amortisation in the 2014 year, $605,000 in the 2015 year, and is forecasting operating earnings of $1.6 million in the 2016 March financial year. Squirrel Money is forecast to make an ebit loss of around $1 million this financial year.

"The price-earnings ratio for the mortgages business is currently 18 times, which is on the high side as far as the standard goes on the sharemarket but that PE ratio is forecast to drop in the projections to nine times in 2018 and then to four times in the 2019 financial year," he said.

That's because of changes to the ways banks remunerate brokers. The business has built up recurring revenue that will drop to the bottom line reasonably quickly over the next two to three years and reduce the PE ratio, Mr Bolton said.

A trustee company associated with Bolton owns 91% of the group while some staff own the remainder. The capital structure was tidied up in January this year ahead of the external capital raising which is the first for the company.

Bolton said the $5 million would be sufficient to get the business through to a planned listing on the NZX's new NXT market in mid-to-late next year.

"We just have to get through this and settle down for a bit and stay focused on the growth plan and deliver on that," he said.

Squirrel Money differs from other peer-to-peer offerings in the market because it's not funded by a bank – only from person-to-person loans. That means it has got off to a slower start than Harmoney, the first peer-to-peer lender, which lent more than $100 million in its first year. Squirrel Money has lent  about $1.7 million to date and has a target of having lent $24 million by the end of the March 2017 financial year.

(BusinessDesk)