Prosper Makes Its First Acquisition – a HealthCare Lender

Prosper Acquires American Healthcare Lending

More big news from Prosper today and this story is very significant. Prosper has completed their first acquisition – American Healthcare Lending (AHL) – for $21 million in cash.

As the name implies AHL is for patients looking to finance their medical procedures. Founded in 2009 in Salt Lake City, Utah, they work in a number of verticals within health care: cosmetic surgery, fertility, spine and neuro surgery, behavioral health, just to name a few. They are not actually a lender as such; rather they have developed a cloud-based patient financing platform that is integrated with a variety of lenders including Prosper.

This is from the AHL website:

American HealthCare Lending sits at the intersection of the healthcare, technology, and financial services markets and we are using technology to bring innovative financial services solutions to a massive healthcare problem. Our patient financing platform allows healthcare providers nationwide to Make Healthcare Affordable™ for patients every day by offering high-dollar installment loans to individuals with good credit.

This acquisition all started when AHL became a referral partner of Prosper last year. AHL is an innovative young company that appealed to the executive team at Prosper. They are looking to disrupt financing in the healthcare industry in a similar way Prosper is looking to disrupt the broader consumer lending industry.

AHL works directly with a number of lenders, including Prosper, but their main innovation occurs inside the doctors’ offices. The patient can enter their information on the spot and get a decision on their loan instantly. The maximum loan size is $100,000 and loan terms go up to 7 years. Obviously the loans they refer to Prosper would fit within Prosper’s loan terms – a maximum size of $35,000 and a maximum loan term of 5 years.

A Strong Position in the Medical Financing Market

I chatted with the CEO of Prosper, Aaron Vermut, and the President, Ron Suber, yesterday about this deal and they were both clearly excited. For the past two years the Prosper team has been focused on growing the base of debt consolidation borrowers and they have been very successful at that. But now they want to broaden their approach. They see lending for elective medical procedures as a huge growth area and one that can help Prosper scale.

“The total addressable market for financing of medical procedures is in the hundreds of billions”, said Ron Suber. “The partnership with AHL gives us a strong position in this market.” What it also does is give them an entry point into Point of Sale. The applications for these loans are often done on the spot in doctors offices and will give Prosper some valuable experience in working with loans in that environment.

If you look at the loans that Prosper is funding today medical procedures make up a tiny percentage of loans available to investors. The vast majority continue to be for debt consolidation. But this is about to change according to Suber: “I think we will look back at this acquisition as the very beginning of a change where Prosper starts attracting a new kind of borrower.”

Prosper didn’t share any of the metrics for AHL so we don’t know exactly what they are getting for their $21 million. But on AHL’s website it does say that they have over 1,000 providers in all 50 states and that 300,000 people have received loans through their network totaling $5 billion. So, whether or not this is a great deal for Prosper remains to be seen. But as a first acquisition it makes a lot of sense to me. It gives Prosper access to a whole new market and should allow them to grow a large new channel of borrowers. And it is not that different to Lending Club’s acquisition of Springstone early last year.

When I chatted with Aaron Vermut yesterday it was for the next edition of the Lend Academy Podcast. We discussed this acquisition at length among many other topics – you will be able to listen to the entire interview when the episode is published in the next few days.

Here is the official press release as well as coverage in The New York Times.

Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech.

LendIt Fintech conducts three conferences a year for the leading fintech markets of the USA, Europe, and Latin America. LendIt also provides cutting-edge content all year long via audio, video, and written channels.

Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.

Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.

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Jacob
Jan. 27, 2015 10:27 am

Thanks for posting this Peter. I live right outside the Salt Lake area and I am in the health care field and I hadn’t even heard of this company, so I’m glad you posted this. It will be interesting to observe how Prosper folds them into its business model.

I am not one to question Aaron Vermut’s strategy, but I would love for you to ask him questions about potential charge-offs on medical bills financed this way. It seems like one of the most common reasons for personal bankruptcies is due to accumulated medical bills. If this is true, I wonder if the charge-off rate on these types of loans will be higher than we’ve seen. Of course, the charge-off rate might be quite different for elective cosmetic procedures vs. emergency room treatment. I would love to see Prosper and Lending Club experiment in the asset-backed loan space market where there is collateral behind to repossess in the event of non-payment.

Jacob
Jan. 27, 2015 4:03 pm
Reply to  Peter Renton

I agree and that is why I don’t (for now) exclude medical loans in my own filters (although I do exclude some other categories). But I am still suspicious of them; I wonder how they will perform in a downturn. The slight uptick in auto delinquency payments is cause for concern as well as how many months we are currently into the “recovery”. We’re due for a correction based on historical data at some point.

Simon Cunningham
Jan. 27, 2015 12:57 pm

Great analysis Peter. Looking forward to listening to the podcast.

LC vs Prosper
LC vs Prosper
Jan. 27, 2015 3:15 pm

seems like Prosper is ripping off the LC playbook..at least to an outside industry observer

would love to understand how they are different

Chris
Jan. 27, 2015 4:42 pm

Wow, I didn’t know anything about this company. Thanks for educating me once again Peter; I appreciate your work!

Sarfaraz Sadruddin
Jan. 27, 2015 7:34 pm

This may or may not come as a surprise, but besides co-founder and CTO, I am also a physician. As a provider, AHL’s system of point of care financing is unique and their value proposition is excellent. I think most of doctors would love to have this tool and do patient financing – especially in smaller community clinics or private practices (which by the way are getting squeezed by big hospitals but thats another discussion).

Very nice move by Prosper.

writing2reality
Jan. 27, 2015 8:20 pm

Curious addition, but certainly one with a bit of thought behind it. It might lead them to creating additional financing products and offerings for investors down the road.

My first takeaway was $21 million, no big deal, a small facilitator. Then I read the $5 billion in loans issued. I’m curious of the revenues and origination fee structure as well as the cost behind their platform. I ask because Lending Club is valued approximately 350 times as much, yet their volume obviously isn’t close to proportionately larger. Certainly there must be a big difference in performance/operations to have that low of a valuation.

B
B
Jan. 27, 2015 9:32 pm

Good point. Valuing a company on current or out year revenue is more appropriate. Valuing a company on total loans issued is not relevant, Rather, valuing it on loans outstanding ( from which they can continue to collect fees) is probably more appropriate

writing2reality
Jan. 28, 2015 7:06 pm
Reply to  Peter Renton

Given LC and Prosper pay $50 per loan referral per affiliate agreements, at 300,000 loans issued you’re talking about $15 million of revenue assuming that rate, which certainly brings the valuation more into line. It wouldn’t surprise me at all if they have a different revenue structure than a flat rate referral fee, which of course complicates the previous assumptions.