AI-powered insurtech Lemonade has entered into a definitive agreement to acquire pay-per-mile auto insurer, Metromile Inc., in an all-stock transaction that implies a fully diluted equity value of roughly USD 500 million, or just over USD 200 million net of cash.
In late November 2020, it was revealed that Metromile was to go public via a merger agreement with INSU Acquisition Corp. II, a special purpose acquisition company (SPAC), with an equity valuation of USD 1.3 billion.
The company started trading in early February and on Friday 12th, its stock was trading at USD 17.23, giving Metromile a valuation of more than USD 2 billion based on the fully diluted share count.
So, the fact that Lemonade has agreed to acquire the San Francisco-based insurer for a fully diluted equity value of approximately USD 500 million, signals a significant write-down in the value of Metromile, meaning a big loss for its investors.
Under the terms of the agreement with Lemonade, Metromile shareholders will receive Lemonade common shares at a ratio of 19:1.
Currently, Metromile has licenses in 49 states, more than USD 100 million of seasoned in-force premium, over USD 250 million of cash on its balance sheet, and an expert team in harnessing big data and AI for car insurance.
Lemonade Chief Executive Officer (CEO) and cofounder, Daniel Schreiber, commented: “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.
“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.”
Lemonade Car, a smartphone app designed to leverage telematics in order to reward safe and low-mileage drivers, launched in Illinois last week with plans for a nationwide rollout in the future.
By acquiring Metromile’s algorithms, it’s hoped that Lemonade Car will be propelled from a newcomer in the car insurance arena to its vanguard.
Dan Preston, CEO of Metromile, said: “We’ve long admired Lemonade for its beautiful products, world-class customer experience, unprecedented growth, and socially-impactful business model.
“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.”
The acquisition is expected to close in the second quarter of next year, and remains subject to regulatory approvals and the approval of Metromile stockholders, as well as other customary closing conditions.