Insurtech giant Lemonade officially closed its acquisition of pay-per-mile auto insurer Metromile on July 28, 2022, gaining over $155 million in cash, over $110 million in car premiums, a technology-driven insurance entity with 49 state licenses, and precision data from 500 million car trips.
The all-stock transaction was first announced in November 2021 and saw Metromile shareholders receive 7.3 million LMND shares. The deal follows the launch of Lemonade Car – the insurtech’s “biggest project ever” – with the idea being that Metromile’s AI-driven models will make Lemonade Car “the most competitive, precise, and fair” car insurance product in the market.
On July 29, the day after the Metromile acquisition closed, Lemonade laid off 20% of the Metromile team, with the explanation: “This acquisition is synergistic, in that the combined entity is better than the sum of its parts, and can operate with fewer people than were needed to staff the two standalones.”
And to conclude a week of big announcements, the insurtech then revealed on August 1 that it had sold Metromile’s Enterprise Business Solutions (EBS) platform to the digital insurance platform, EIS. EBS was Metromile’s SaaS claims automation and fraud detection platform which it licensed to large insurance carriers. Terms of the all-cash transaction were not disclosed.
While some in the insurance industry may see Lemonade’s divestiture of the EBS platform as a sign of a coming recession, Novidea’s SVP and general manager for North America, Eric Ayala, sees it more as a “genius business move by Lemonade” and “the icing on the cake of one of the best deals in 2022”.
“It is the final chess move of a very well-executed M&A,” he told Insurance Business. “While the terms of this all-cash deal with EIS weren’t revealed, consider that Lemonade acquired Metromile with stock, which meant zero cash outlay for them.
As part of that deal, Lemonade also took an estimated $150 million in cash, plus a $100 million premium, the licenses to sell auto insurance products in 49 states, a brilliant team of data engineers from Metromile, which arguably was their biggest asset, and algorithms that will change the auto insurance landscape. This is the kind of thing that can take a company years and years of work to get through organic growth.”
According to Ayala, the Metromile EBS sale was Lemonade selling off assets that did not align with its strategy. The same goes for the Metromile layoffs, which he described as “nothing more than eliminating redundant personnel caused by the acquisition”.
Read more: Lemonade makes Metromile layoffs
The Novidea exec described Lemonade’s Metromile and EIS deals as “textbook private equity move[s]” that show how today’s insurtechs are not only tech-savvy, but also business-savvy. He said incumbent insurers should “absolutely be worried” and that Lemonade’s “serious business moves” should be a wake-up call to the larger insurance players.
“We are seeing well-run insurtechs make some great strategic moves,” Ayala commented. “It’s not only a consolidation of the market, which will leave a handful of extremely strong insurtechs, but it’s a consolidation of talent – and talent is very scarce.
“But more so, it’s the investment insurtechs are making today in data and data analytics which should worry incumbents. Soon, the level of profitability insurtechs will be able to reach will offer them strategic opportunities that incumbents won’t have the flexibility to make.”
Moving forwards, Ayala expects to see more sophisticated M&A from well-established insurtechs. He said the market has punished the big insurtechs, not only due to the extremely high revenue multiples (which they gave themselves) but also because of the lack of diversity in their product portfolios.
“[The big insurtechs] will look for acquisitions to add new lines of business and to expand into new states for existing products,” he said. “Lemonade just wrote the playbook of what we will see in the future.”
