Lemonade buys Metromile at 70% below original valuation

Nine months after it was announced, the share-based merger between Israeli insurtech company Lemonade (NYSE: LMND) and US insurance company Metromile (Nasdaq: MILE) has closed at 70% below its original value, after a slide in the share prices of both companies.

Both have continued to present heavy losses in a market that now prizes efficiency over capturing market share or development of new products. When the merger was announced last November, Metromile had a market cap of $400 million, while the deal valued it at $500 million. Today, it was bought for $145 million in Lemonade stock, a valuation lower even than its cash balance of $155 million. Metromile’s market cap is $137 million, so the deal represents a premium of just 5.8%.

Since the deal was signed, the Nasdaq index has fallen 23%, but Lemonade’s share price has fallen 70% and that of Metromile 68%.

At the time of signing, Metromile had $300 million cash, whereas now, as mentioned, it has $155 million, which will be divided up among Lemonade’s shareholders. Metromile’s shareholders received 7.3 million Lemonade shares, worth $145 million, in the form of one Lemonade share for every nineteen Metromile shares. The deal values the combined company at $1.1 billion, which is close to the aggregate value of the two companies. The US company employs 200 people. Following the merger, some Metromile employees in the US whose jobs duplicate those of Lemonade employees will be laid off.

Metromile, an insurtech company specializing in vehicle insurance, turned public through a SPAC merger last year at a valuation of $1.3 billion, or $900 million pre-money. Shortly afterwards, it was traded at a market cap of $2 billion, but subsequently declined to its current value, slightly over a tenth of its valuation in the first merger.

Metromile was founded in 2011, and is an insurtech pioneer in the vehicle insurance market. It sells insurance packages in accordance with driver behavior: drivers who demonstrate via a monitoring device in their vehicles that they drive carefully pay lower premiums.

Lemonade co-CEO and co-founder Shai Wininger said, “Following the deal, Lemonade will turn from a company with a vehicle insurance product in two states in the US to a company with licenses in 49 states, making it a diversified company with revenue from insuring homes and property, pets, and vehicles. The acquisition will enable us to accelerate the rollout of ‘Lemonade Car’ in the US, through immediate access to additional states and the offering of a unique pricing model for drivers who drive little, or more safely.

“Particularly now, given the fears of a recession in the US economy, many consumers prefer to pay in a way that reflects their use of their vehicles, and not in a global way according to a general average of good drivers and dangerous drivers, as in usual with traditional insurance.

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“For ten years, Metromile’s sensors have monitored billions of kilometers of driving, gathering with precision hundreds of parameters a second. The amount of data that we have catapults our vehicle product to the front of the US insurance market.”

How do you see the low valuations by the market? After all, Metromile was traded at a market cap below its cash balance?

“The insurtech market is no different from any other category of technology stocks, particularly growth stocks. We see an over-correction, and it’s clear to everyone that when companies are traded just slightly above the value of their cash, the potential future value of the company is not being taken into account. This is a clear anomaly. When will it change? No-one can predict when that will happen.”

Published by Globes, Israel business news – en.globes.co.il – on July 28, 2022.

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