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 very well-known US company, a pioneer in pay per mile, a technology company, in fact one of the first insurtech companies founded.”
Wininger says that Metromile customers receive a device that is simple to install in their vehicles. The device receives signals from the vehicle, such as a sudden stop, an accident, travelling above the speed limit, and so on. “Everything is recorded and uploaded to the cloud, and the company uses the data to price the customer’s premium the following month. This is a policy that is being updated all the time. UBI (usage based insurance) is very popular in the insurance world and we believe that 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 five billion miles of driving, trillions of signals,” Wininger says. “That enables them to price insurance in the most precise way possible. It means substantial savings for customers who drive little and safely. The average saving for them on insurance costs is 47%.”
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, this is a company of a very different character from that of Lemonade,” he says. “On the one hand, the cultures of the companies are very similar, and that’s one of the things we really liked: they see the world in a way similar to the way we see it, they understand the importance of artificial intelligence and machine learning to the ability to provide fairer insurance.
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“On the other hand, they’re less aggressive, and want to hone the precision of their models before they continue to spread to more states. We respect that approach, and it’s good for us because that way we benefit from ten years of improvements to the models. It should be remembered that besides the data, the licenses, and the wonderful team of 380 very experienced people in this field, Metromile is also active in the market and sells, with premiums (IFP) of $100 million that will be added to ours, and it has 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 companies and there will be just one product of Lemonade, which will enable us to appeal to different segments of the population – those who prefer pay per mile, and those who prefer a fixed price. In our product too, the pricing depends on how much you actually drive, but it isn’t updated monthly as it is at Metromile.”
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 thought that this was deal that it was right to do through a share swap, because we manage our cash flow and balance sheet in a very precise and planned way, and such a deal will have less impact on future plans.”
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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