Less than a week after digital insurance company Lemonade (NYSE: LMND) announced the launch of a new vehicle insurance product, it has now announced a substantial acquisition that will strengthen its position in the US vehicle insurance market.
Israeli company Lemonade is buying Metromile (Nasdaq: MILE) of the US in a stock transaction that values the acquired company at $500 million, or just over $200 million excluding the company's cash.
Metromile, which was recently merged into a SPAC, is traded on Nasdaq at a market cap of $400 million. Its share price rose 7% in late trading after the announcement of the acquisition by Lemonade. Lemonade has a market cap of $4.3 billion, up 143% since its flotation in July 2020. Metromile shareholders will receive Lemonade common shares at a ratio of 19:1.
Lemonade was founded in 2015 by Shai Wininger and Daniel Schreiber, who serve as joint CEOs. The company is active in the US, offering home insurance, insurance of pets, and life insurance. Metromile is an older company, founded in 2011. Wininger described it as "a well-known brand, a pioneer in pay per mile, a technology company, and one of the first insurtech companies founded."
Wininger says that Metromile customers receive a dongle that plugs into their vehicles. The device receives signals from the vehicle, such as sudden stops, accidents, travelling above the speed limit, and so on. "Everything is recorded and uploaded to the cloud. Metromile uses this data to price the customer's premium the following month. This is a policy that is being updated all the time. I believe UBI (usage based insurance) in car insurance will become very popular and that's where the world is going."
Metromile will bring with it to Lemonade all the data it has gathered over the decade it has been in business. "Metromile has accumulated data from over three billion miles of driving, trillions of signals," Wininger says. "That enables them to price insurance in the most precise way possible and translates to substantial savings for low-mileage and safe drivers. Metromile customers reported up to 47% in savings."
Wininger points out that the acquired company has licenses to operate in 49 states in the US, and is currently active in eight of them. "In this context, their go to market strategy was different from that of Lemonade," he says. "On the one hand, we share a very similar set of values and culture - we both believe in the potential of artificial intelligence and machine learning to provide fairer insurance.
"On the other hand, their strategy was not as aggressive as ours, and wanted to hone on the precision of their pricing models before investing in growth. We respect that approach, and will benefit from it with their ten years of improvements and iterations. It should be remembered that besides the data, the licenses, and the wonderful team of 380 highly experienced car insurance team, Metromile also has $100 million of premiums that will be added to ours as well as their nearly 100,000 active customers."
"We'll unite the companies"
For the time being, the Metromile brand will be maintained, but Wininger says that "eventually we'll unite the brands and everything will operate under the Lemonade brand, which will enable us to appeal to different segments of the population."
Metromile was hit by the Covid pandemic, since people used their cars less, but Wininger sees the positive side of that: "During the pandemic, Metromile customers paid considerably less, and that won the company a lot of credit."
Why did you choose to make the acquisition a stock transaction?
"We are very thoughtful about how we manage our cash flow and balance sheet and believe that a share swap will be optimal."
At the end of the third quarter, Lemonade had $1.1 billion in cash and cash equivalents.
Metromile share price sank after SPAC merger
Metromile became a public company through a merger into a SPAC only a few months ago. The company's valuation in the deal was $1.3 billion, or $900 million pre-money, and it is now being acquired at a third of that valuation. Shortly after the merger, the company had a market cap of about $2 billion, but since then its share price has declined to give a negative 82% return since its first day of being traded.
Incidentally, the SPAC into which Metromile was merged was linked to Betsy Cohen, who leads many SPACs, among them the one into which Israeli fintech company Payoneer was merged, and another that is due to acquire trading platform eToro. Cohen is also a director of Metromile, and her son is one of the leaders of the SPAC that acquired the company.
$171 million loss
Meanwhile, Lemonade has also released its financial statements for the third quarter, showing results better than the analysts forecast. The company had revenue of $35.7 million in the quarter, double the figure for the corresponding quarter of 2020, and it posted a net loss of $66.4 million, or $1.08 per share, which compares with a consensus analysts' estimate of $1.16 per share.
Adjusted EBITDA was minus $51.3 million, which compares with minus $23.7 million in the corresponding quarter, the negative change being attributed to a rise in operating expenses. At the end of the third quarter of this year Lemonade had 1.36 million customers, 45% more than at the end of the corresponding quarter.
For the year to date, Lemonade's revenue totals $87.4 million, representing growth of 18.3%, and it posted a net loss of $171 million and adjusted EBITDA of minus $133 million, both loss figures being higher than in the corresponding period of 2020.
For the fourth quarter, the company sees revenue of $39-40 million and adjusted EBITDA of minus $5-52 million, which will bring it to annual revenue of $126-127 million, 34% more than in 2020, and adjusted EBITDA of minus $183-185 million.
Published by Globes, Israel business news - en.globes.co.il - on November 9, 2021.
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