Thomas Depping, who quit banking after clashing with regulators, has big ambitions for his online lender Ascentium Capital now that he's agreed to sell a controlling interest to Warburg Pincus.
The private equity firm's deep pockets will help Depping make Ascentium a household name among small-business borrowers, he said.
"I'm very happy to be affiliated with a company like Warburg Pincus," Depping, Ascentium's founder and CEO, said Wednesday. "There's a lot of capital here to help with acquisitions and growth. … I'm looking forward to the next five years."
Warburg Pincus' investment in Ascentium comes as the banking sector moves gingerly to reclaim its reputation as Main Street's business lender of choice.
Banks' general tightening of credit standards following the financial crisis led to the rise of nonbank small-business lenders. But over the past year, a number of banks, either in partnership or on their own, have launched small-business finance initiatives. In December, for example, JPMorgan Chase announced a partnership with OnDeck aimed at creating a high-speed, small-dollar loan product for small businesses. Wells Fargo followed suit in May, announcing a digital fast-decision loan product in amounts from $10,000 to $35,000.
For Depping, the deal represents a vindication following his run-ins with banking regulators, who deemed his business practices too risky and prompted him to quit the industry.
As a nonbank company, Depping said, Ascentium has encountered little difficulty with asset quality. Last month, Moody's Investors Service upgraded a block of asset-backed securities Ascentium issued in 2015. The rating agency cited the bonds' solid credit performance.
"Our average borrowers have been in business 15 years and have a credit score above 750. This is definitely not subprime lending," Depping said.
Ascentium, based in Kingwood, Texas, has provided financing totaling $2 billion since it began lending in August 2011, including $225 million in the quarter that ended June 30.
"We see a compelling market opportunity to continue to build Ascentium to become a multiproduct capital provider to small businesses through both organic growth and complementary acquisitions," Arjun Thimmaya, its managing director, said in a press release.
Neither Warburg Pincus nor Ascentium disclosed the sale price or the expected closing date when they announced the deal Tuesday. Published reports put it as high as $300 million. It is likely a windfall for Ascentium's original backers, Vulcan Capital and LKCM Capital Group, both of which cashed out. Depping agreed to roll over his entire equity stake.
Warburg Pincus appears to be warming to specialty finance. In August it invested $220 million in Mosaic, an Oakland, Calif., firm that lends to homeowners seeking to install solar panels.
Ascentium's growth to date has been spurred by "fabulous technology" that enables it, in some cases, to approve and fund loans in the same day, Depping said.
"Speed and customer service, that's all we do," Depping said, adding that there are no plans to change Ascentium's business model.
"We're going to keep doing what we do," he said. "The small-business market is enormous. We've just scratched the surface."
For seven years prior to founding Ascentium, Depping ran Main Street Bank, which was also headquartered in Kingwood. He opted to surrender its charter out of frustration with what he perceived as heavy-handedness by regulators, who in 2010 slapped Main Street with a consent order requiring it to boost its Tier 1 capital ratio to 12% to compensate for an overweight commercial and industrial loan portfolio.
Depping and his management team acquired Main Street's commercial lending platform, selling the branches, deposits and a small tranche of loans to Houston-based Green Bancorp.
In a 2015 interview, Depping bemoaned the regulatory burden bankers faced.
"There's so much red tape and you find yourself running the bank to make regulators happy," he said. "I'm not sure it makes anything safer."
Depping acknowledged he enjoyed his first few years at Main Street, before regulators began questioning its business model. Like many other nonbank lenders, he may now and then cast an envious glance at banks' comparatively low cost of funds — but that is not to say he hankers for the past.
Liquidating Main Street "was clearly one of the best decisions I ever made," Depping said Wednesday.