Less than 11 months after raising $108 million in Series B funding and 5 months after naming a new CEO, SimpleNexus is fetching a hefty 28.8X multiple against its 12-month trailing revenue of $41.6 million from publicly traded nCino.
Why? Several reasons, but especially because SimpleNexus adds over $4 billion in new "SAM" to nCino's sales upside.
Lehi, Utah-based SimpleNexus is being gobbled-up by Wilmington, North Carolina-based nCino (NasdaqGS:NCNO) for $1.2 billion in cash and stock.
According to its press release, "nCino will acquire SimpleNexus for approximately $240 million in cash and approximately 13.2 million shares of nCino Common Stock, subject to customary adjustments for transactions of this nature."
Presuming all goes well with regulatory reviews, the acquisition is expected to close before the end of the nCino fiscal year (31 January 2022).
As noted in this write-up back at the beginning of the year, SimpleNexus announced on January 5 that it had raised $108 million in a Series B round of funding. So today's announcement comes just over 10 months later.
Additionally, SimpleNexus announced in early June that its CEO was stepping down to lead undisclosed skunkworks efforts.
Instead, the company would be led by Cathleen Schreiner Gates, a business services veteran with a stellar financial industry track record, especially her 7.5 years of senior executive management service with Ellie Mae, one of the top software and services providers to the residential mortgage marketplace.
Contextually, Schreiner Gates had also served on the SimpleNexus board for 15 months and as its President for 10 months before being tapped for the CEO position.
A SimpleNexus Summary
Formed in 2011, SimpleNexus develops mobile-first technology for mortgage lenders and their clientele.
Today over 41,000 loan officers at over 300 independent mortgage banks and more than 80 banks and credit unions use SimpleNexus products/services.
In fact, the acquisition news release says that
...over "1 in every 7 mortgage originations in the U.S. leveraged SimpleNexus’ software (during the first nine months of 2021)."
Who / What is nCino? And Why is it Buying SimpleNexus?
The self-proclaimed Worldwide Leader in Cloud Banking, nCino was formed in late 2011 to address what its founders described as "inefficient and time-consuming" processes in the commercial lending world.
Currently, nCino helps "transform how financial institutions operate" as it serves over 1,200 financial institutions globally, with assets for the largest of these enterprises of over $2 trillion.
Since its inception, the vast majority of nCino's focus (and revenue) has come from serving financial institutions as a business-to-business (aka, commercial) FinTech services company.
As shown in the graphic below, 6 of the 7 services nCino focuses on are directly related to commercial FinTech services, namely
- Commercial Banking,
- Treasury Management Sales & Onboarding,
- Asset Finance & Leasing,
- Portfolio Analytics,
- Retail Banking, and
- Small Business Banking.
With these service segments, nCino explained in its Investor Deck that its Serviceable & Addressable Market (aka, SAM) is $12 billion in annual revenue. (See Slide #15.)
{NOTE: Simply put, SAM simply means what is the total amount of revenue your organization could produce annually IF your organization landed 100% of all its potential revenue, assuming it could service (aka, handle said business). That's what SAM means.}
And to be serious, an annual SAM of $12 billion is nothing to sneeze at. But here's where things get really interesting, acquisition- and valuation-wise.
As shown in the slides above and below from the nCino Investor Presentation (Slides #15 and #12), the SimpleNexus annual SAM is $4 billion.
But the Presentation also shows that nCino believes there is zero overlap between its SAM and the SimpleNexus SAM, meaning that acquiring SimpleNexus will grow nCino's annual market opportunity by 33% to $16 billion.
That said, for the past 12 months, SimpleNexus generated $41.6 million in topline revenue, not bad at all.
However, this means that on a 12-month trailing revenue basis, nCino has placed a 28.8X-multiple (aka, valuation) on SimpleNexus ... on revenue, not profit. Why?
I suspect that answer is multifaceted, with one facet being noted above in that SimpleNexus allows nCino to grow its total SAM by 33%.
The other reason? I suspect it's because SimpleNexus' success is currently derived from working with "just" 35 of the Top 100 Home Mortgage Lenders in the country.
In other words, that means that the SimpleNexus upside (just with mortgage lenders), is nearly 200% in the U.S. alone. Sounds juicy good to me, at least from a financial opportunity standpoint.
My assessment is that this acquisition of SimpleNexus may prove to be as successful for nCino as it appears the acquisition of Divvy will be for Bill.com.
Good luck, to both SimpleNexus and nCino.
