BREAKING: Auto fintech eyes CPS acquisition

Auto Experience , an auto finance fintech helmed by industry veteran Samuel Ellis, announced this morning its intent to acquire Consumer Portfolio Services in a $135 million all-cash transaction. The company proposes to acquire the subprime auto lender for approximately $6.18 per share of common stock, nearly doubling CPS’ market valuation. Consumer Portfolio Services’ stock [Nasdaq: CPSS] was trading at $3.35 at market close yesterday and had a market capitalization of $75.39 million. Auto Experience has requested a response from CPS’ board by Oct. 30, according to the release. While Ellis couldn’t comment on the particulars of the deal due to a non-disclosure agreement, he told Auto Finance News that the general strategy behind the acquisition is to incorporate Auto Experience’s full suite of proprietary technology, which encompasses tech stacks from originations to servicing, into an existing auto finance operation. “The analogy for that is, you go buy something on Amazon.com, all you see as a consumer is the technology, the digital products and the pleasant user experience,” Ellis said. “But behind the scenes, there's warehouses, there's planes that deliver, there's trucks that do the last mile. There’s logistics and engineering that coordinate that.” Auto finance is no different, Ellis explained. “You can have a very pleasant online experience as a consumer: you can enter your personal information, you can select the vehicle you want, you can finalize terms. And when you click ‘accept,’ there's a credit-decisioning process that occurs; there's a state licensing that needs to be in place; there's funding credentials that go to the bank that initiate an [automatic clearing house] that pays the dealer. So, there's all infrastructure that goes on behind the scenes that, if they’re connected, it allows you to do [those processes] much more efficiently, and much quicker, with a better experience for the consumer.” While many auto finance fintechs go the traditional route of developing a platform to sell to lending partners, Auto Experience is looking to shake up the status quo. “In a lot of industries, you bring innovative software, you sell it to companies and provide the service to make things work better for them,” Ellis said. However, in the case of auto finance and upgrading legacy systems, there’s not much interest in changing something that has worked in the past, he said. “If you take a step back look at the industry, it works okay,” Ellis said. “There's a lot of capital that finds its way from Wall Street to large institutions that are ultimately going to be buying securitizations, providing warehouse facilities or holding auto receivables on their balance sheet. And it's distributed through a network of [finance] companies that, by and large, is compliant with the way banks do things.” In the end, the financing process is painful for consumers, he said. “We see that the only way to deliver meaningful change in that process is to acquire a company and put our software on it,” Ellis said. Texas-based Auto Experience was founded in 2018 and is comprised of a management team and no staff, Ellis said. The company secured its funding for the acquisition through confidential banks and private equity partners. Irvine, Calif-based Consumer Portfolio Services was founded in 1991, and has purchased nearly $17 billion in retail installment contracts since its inception, according to the release. As of mid-year, the subprime lender had a managed portfolio of $2.3 billion. Auto Finance Summit, the premier industry event, returns October 20-22, 2020, as a virtual experience. The virtual experience will offer the quality networking and education of past events, all through an online platform. To learn more about the 2020 event and register, visit www.AutoFinanceSummit.com .

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Customer experience: acceleration or speed bump?

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