| First Republic Bank liked Gradifi’s student loan paydown platform so much, they bought the company last week for an undisclosed amount in an all-cash deal.
Boston-based Gradifi is perhaps best known for its SLP Plan, or Student Loan Paydown Plan, a technology and service platform that employers can use to make contributions to their employees’ student loans. Gradifi client PwC was the first company to offer student loan paydown contributions as a perk to its employees, particularly Millennials. Natixis Global Asset Management and Penguin Random House are among those that have followed suit, and Gradifi said in a statement that this benefit is increasing in popularity as Millennials enter the work force en masse.
Gradifi and the San Francisco-based First Republic Bank initially became acquainted when the bank launched the Gradifi paydown benefit for its own employees last August, Gradifi CEO Tim DeMello told Banker & Tradesman. Over time, First Republic CEO James Herbert became increasingly interested in Gradifi’s business model. Two other suitors had approached Gradifi, but DeMello said it quickly became clear that First Republic would make the best match for his firm.
“What we really wanted was to be an independent brand, a wholly-owned subsidiary with a very strong financial backer who had a great service culture. Our employers who use our platform really want good service for their employees, and First Republic, if you look at net promoter scores, they’re up there with Apple and Amazon,” DeMello said. “We first met on this about six weeks ago and closed on Friday. It happened very quickly.”
Though DeMello did not disclose the price at which First Republic bought Gradifi, he did break the deal down into three components: a buyout of all of Gradifi’s shareholders, as well as DeMello’s equity position; a buildout to fund expansion; and a five-year incentive package for DeMello and his team.
As a wholly-owned subsidiary of First Republic, Gradifi will retain its own brand and will be free to work with other banks, DeMello said. This summer, for instance, Gradifi partnered with the Boston-based Radius Bank to offer a debit card with a student loan paydown reward.
Gradifi will also look to increase its staff, now 27, by about 30 to 40 percent over the next year to 18 months, and it will open offices in Los Angeles, San Francisco, Palo Alto and New York, DeMello said.
Where once the conversation about fintechs revolved largely around how these financially focused startups would disrupt traditional banking, banks and fintechs now are forming more symbiotic relationships. Fintechs are finding it easier to scale up their business by partnering with established banking institutions, while banks can more easily offer new and innovative products and services in partnership with a smaller, nimble fintech.
For his part, DeMello said he’d always envisioned his firm as eventually partnering with a financial institution, and he’ll remain on board as the CEO post-acquisition.
“You don’t have many fintechs that end up as standalone independent publicly traded companies, and if you look at a large financial institution that’s focused on their business, when a new opportunity comes along, they want to participate in that,” he said. “I think you’ll find 80 to 90 percent of fintechs over the next three to five years will make their way into a parent. The key is finding the right one.”
