Lemonade to acquire 100% of Metromile in an all-stock transaction
One of the hallmarks of Lemonade’s brand since its launch back in 2016, has been its laser focus on aggressive growth. In the mere five years since its initial launch into the New York homeowner’s insurance marketplace, the company expanded its homeowner’s product nationwide, entered into the life insurance marketplace, launched pet insurance, expanded into three European country marketplaces and initiated an IPO. And if this month is an indicator, the company has no plans to slow down.
After debuting Lemonade Car earlier this month, which marks the insurer’s first foray into auto insurance, the company has now announced its acquisition of the auto insurance platform Metromile. Together, the two insurtech platforms have entered into a definitive agreement which will see Lemonade acquire Metromile in an all-stock transaction valued at approximately $500 million (implying a fully diluted equity value) or just over $200 million in cash. According to the terms of the transaction, upon approval of the deal, Metromile shareholders will receive Lemonade common shares at a ration of 19:1.
A built-in base from which to expand Lemonade Car across the country
Why Metromile? As Lemonade explained in its recent Earnings presentation, Metromile completes them by allowing Lemonade to inject “Metromile’s precision pricing into Lemonade Car.”
Moreover, Metromile enjoys 49 state licenses, over $100 million of seasoned in-force premium (IFP), over $250 million of cash on the balance sheet, and a team unmatched for their expertise in harnessing big data and AI for car insurance.
“We launched Lemonade Car last week, and we think you’ll love how it looks and handles. Pop the hood and you’ll see that it’s powered by telematics and architected to learn from the data it generates, with precision pricing as its ultimate destination,” said Daniel Schreiber, Lemonade CEO and cofounder. “That’s where Metromile comes in. They have been down this road billions of times, and their proprietary data and machine learning algorithms can vault us over the most time and cost intensive parts of the journey. In a vast and competitive market like auto insurance, today’s deal is a huge unlock of value for our customers and shareholders.”
While Lemonade has been at the forefront of using big data and AI in home and pet insurance, Metromile has been trailblazing a parallel path for car insurance. Metromile’s car-mounted precision sensors took over 400 million road trips in recent years, covering billions of miles and sending real-time streams to the Metromile cloud. These were cross referenced with actual claims data, yielding precise predictions for losses per mile driven. These algorithms hold the promise of propelling Lemonade Car from a newcomer in the car insurance space to its vanguard.
“We’ve long admired Lemonade for its beautiful products, world-class customer experience, unprecedented growth, and socially-impactful business model,” said Dan Preston, CEO of Metromile. “The data science-driven technology platform we built created fairer and more individualized car insurance for consumers in an industry marred by vast inequities. Joining forces with Lemonade Car will create the most customer-centric, fair, and affordable car insurance, and is a great outcome for Metromile shareholders, who will benefit as shareholders of the combined company. It also means that now, homeowners, renters, and drivers alike can have all of their insurance needs with a single company that truly has their best interests at heart.”
According to the terms of the transaction, the deal is slated to close during Q2-2022, pursuant to the required regulatory approvals. In addition, the proposed transaction also requires the approval of Metromile stockholders, as well as being subject to other customary closing conditions.
Additional insight into Lemonade’s auto insurance plans
During Lemonade’s recent Q3-2021 Earnings call, CEO and Co-founder Daniel Schreiber began by discussing the company’s plans for Lemonade auto and its decision to acquire Metromile. Here is an excerpt from the transcript of his initial comments:
“Good morning. I’d like to begin with a very exciting news about our car-in product strategy. Lemonade car was launched last week and today as part of our continued investment in this line, we announced our acquisition of the tech-enabled car insurance company, Metromile. We believe the deal will be a significant value unlock to our shareholders and our customers and we expect this transaction to pay dividends in three important currencies.
Firstly, by collapsing time. We’re acquiring billions of miles of highly textured driving data, advanced telematic technologies and deep pricing and underwriting knowledge. Metromile has implemented seasoned proprietary machine learning models that are informed by real world feedback and iteration at scale. It would candidly take us years to gather this level of insight.
The deal also delivers over $100 million of seasoned in-force premium, 49 state licenses and a team steeped in every aspect of digital car insurance, all things that can accelerate the growth trajectory of our own car insurance business. Secondly, the deal allows us to flatten risk curves. Not only does the transaction accelerate our growth trajectory and knowledge base, but importantly, it allows us to bolster the riskiest parts of our car ambitions, namely growing Lemonade car before our data models season. Lastly, this transaction delivers increased efficiencies.
Post transaction close, our strategy is to build a business that preserves a single culture, single tech stack, single brand, unified team and a single product experience. We believe this strategy yields considerable revenue and cost synergies that will enhance Lemonade’s financial profile. Just days ago, we launched Lemonade Car. This was our Herculean effort by our team.
The results of the car insurance product built from scratch by the largest team we’ve assigned to a single product ever. We’re incredibly proud of how it works out and believe it’s only going to get better from here. Injecting all the Metromile mojo into Lemonade car will lead to a product offering that stands alone in the market. Together, we’ll have all the people and tools in place to deliver the market’s most seamless and customer-centric car insurance product that is also its most affordable, precise and fair.
That, at any rate is the plan.“
Finally, one of the slides from Lemonade’s Earning Presentation that caught our interest, was the insurer’s thoughts about legacy insurers. Specifically, how their dilemma has created an opportunity for Lemonade. Some food for thought for “incumbent” auto insurers.
