All Access

Fintech Deals

Standard

Fintech Deals Alerts

Alert

Fintech Deals Thought Bubble

Thought Bubble

mustard

BFD Expert Voices - Private Credit

BFD Expert Voices

When Bakkt agreed to acquire Apex Crypto from Apex Fintech in 2022, the deal was valued as high as $200 million. That tie-up is now on track to pay out less than half of that, based on Lucinda's analysis of regulatory filings.

The big picture: If Apex Crypto were to hit all its future financial targets, the payout at today's prices would be $88 million at most.

Driving the news: Apex Fintech has been paid about $65.5 million of the $100 million it is eligible for so far, according to financial filings.

The vast majority of that was the initial $55 million cash payment in 2023, when the deal closed.

The rest came in the form of about 6.1 million shares of Bakkt, which Bakkt valued at $10.5 million. That is from of a total $45 million in shares that Apex Fintech could have earned for Apex Crypto (now known as Bakkt Crypto) hitting certain financial targets in Q4 2022.

Peak6, Apex Fintech's parent company, notably sold most of that Bakkt stake in the fourth quarter of 2023, when shares closed between 64 cents and $2.36.

What we're watching: In theory, Apex Fintech could still be paid as much as another $112 million in shares, should the crypto unit hit certain metrics around NFT and crypto trading by the end of 2025.

What they're saying: In a statement to Axios, a Bakkt spokesperson said, "Under the terms of the agreement, Bakkt initially paid $55 million in cash at the closing of the deal, and has the potential to pay up to $145 million in Bakkt stock depending on the achievement of financial targets by the acquired business through 2025, most of which have not been achieved since signing the transaction."

Reality check: But with Bakkt valued at $128.7 million as of yesterday's close, Apex's remaining earnout is capped at about $23 million.

That's because Apex can earn, at maximum, 19.9% of the company's total shares outstanding, based on company filings.

Context: Apex Crypto is now the main revenue driver for Bakkt and is expected to be the core of the company's turnaround strategy.

The unit generated revenue of $725.9 million from April 3, 2023, to Dec. 31, 2023. Net loss was about $39.9 million.

Bakkt made $780 million in revenue for all of 2023, with net losses of $225.8 million.

The bottom line: The deal was billed as potentially being worth $200 million. Today it's worth at most about $88 million.

The tie-up doesn't seem to have worked out anywhere close to what the two companies were expecting.

1 big thing: Apex Fintech's dwindling earnout

Data: S&P Capital IQ; Note: Galaxy Digital trades in Canada; Chart: Axios Visuals

While shares of Galaxy Digital and Coinbase have received a bump from bitcoin reaching new highs, investors have been less confident in Bakkt.

Shares of the company are down 91% since April 2022.

2. Charted: Bakkt lags crypto rivals 

A new card from the buy now, pay later company Klarna shows that it's possible to build a credit card that isn't designed to trap users in a so-called sweat box, Axios' Felix Salmon writes.

Why it's the BFD: Only 33% of Americans pay off their credit cards in full every month, per the Philly Fed.

The rest start paying interest on purchases from Day 1 and often don't stop paying interest — not to mention interest on that interest — for decades.

Roughly half the total amount owed on credit cards is owed by borrowers who have been carrying a balance for at least two years.

Although the average credit card interest rate of 22.6% might be affordable for a short-term loan of a couple of months, it adds up terrifyingly if it's charged month in and month out for years.

By the numbers: Someone who starts with a balance of $10,000 and makes minimum payments on a card with a 24% interest rate would take 25 years to repay the debt — and pay $28,886 in total, per "Delinquent," Elena Botella's account of how credit cards work.

That's without spending a single extra penny on new purchases.

Every time you tap your card, you're borrowing money from a bank that would love nothing more than for you to keep that loan on its books for a very long time.

The big picture: A very good payment card for anyone who ever carries a balance on their credit card would:

Have a complete suite of credit card consumer protections.

Allow consumers to wait until after a monthly statement arrives to actually pay for their last month's purchases, and to always be able to do so interest-free.

Provide simple-interest payment-plan options for anything that can't be paid for in full, where the full purchase ends up being paid off within a few months.

Between the lines: The vast majority of credit cards fail on counts 3 and 4.

American Express charge cards (green/gold/platinum) provide 1 and 3, and even offer 4, through a little-advertised "plan it" feature, but they fail on 2.

Customers of Chase and Citi can use the pay over time and flex pay features, respectively, to approximate such a card. But that requires discipline.

Klarna's new card is the first-ever U.S. card to offer all four, the company says.

How it works: With the Klarna card, at the end of every month, every purchase has to be either paid off in full or converted into an installment loan.

Those loans, which carry an annual interest rate of between 15% and 34%, last between one and six months.

The installment payments appear on the card statements — but they can't be refinanced. If it's an installment payment, then it has to be paid in full.

Follow the money: Klarna claims that only 4% of its BNPL users pay late fees, compared with 23% of credit card users. (Interest on late fees is a particularly insidious part of how credit card companies make money.)

The Klarna card is less flexible than a traditional credit card, insofar as it doesn't allow you to skate by making tiny minimum payments every month. To put it another way, the Klarna card has much higher minimum payments than almost any credit card.

The higher minimum payments mean Klarna has to be much more strict about credit limits. The card doesn't allow customers to make new purchases when they are already going to stretch to be able to pay next month's installment loans.

💭 Our thought bubble: That inflexibility is a feature, not a bug, and helps keep the total amount loaned out in check. More cards should work this way.

3. The BFD: Making credit cards less evil

Illustration of a credit card with a halo facing a credit card with devil horns

🤝 Aspiration spins off consumer brand (Aspiration)

The troubled fintech spun off its consumer financial services segment into its own company, dubbed Mission Financial Partners. Former head of consumer financial products at Tesla and SolarCity, Tim Newell, will lead  the new company as CEO.

👨‍💼 Figure Technology Solutions new CEO (Bloomberg)

Former Brex COO Michael Tannenbaum has re-emerged as  CEO at Figure Technology Solutions, taking over from Mike Cagney.

Figure separated its lending and digital-asset divisions last year, with Cagney heading up the latter. The lending company is preparing for a potential IPO.

Pitted against Plaid, Tink is entering the U.S. as Visa Open Banking Solutions. Its customers now include Dwolla and MaxRewards. Visa sought to buy Plaid in 2020, but was blocked by the Justice Department.

4. Credit score

Illustration of a referee's hand holding a whistle and a red card that says "credit score."

Go deeper into our full database with the Axios Pro Deals Tracker.

• Turnkey, a New York-based provider of wallet infrastructure for crypto developers, raised $15m in Series A funding. Lightspeed Faction and Galaxy Ventures co-led and were joined by Sequoia Capital, Coinbase Ventures, Alchemy, Figment Capital and Mirana Ventures. axios.link/4aMsDsN

• Zefir, a French residential real estate transaction platform, raised €11m from Sequoia Capital and Zigg Capital. axios.link/44cbp5C

• Fundpath, a London-based fund buying software company, raised £2m led by Fuel Ventures. axios.link/44eIPR5

• Triple Private Equity acquired a majority stake in SmartSearch, an Ilkley, U.K.-based provider of compliance and anti-money laundering software. axios.link/4aP4t0F

• JTC plans to acquire First Republic Trust Co. of Delaware, a trust administration service, from JPMorgan Chase in an all-cash deal valued at $21 million. axios.link/3UxjVI7

• Allfunds Group, a European fund distribution platform, has abandoned discussions over a potential sale, per Bloomberg. axios.link/49L37CU

• ComplyAdvantage acquired Golden, an SF-based construction industry database. Andreessen Horowitz joins ComplyAdvantage as an investor. complyadvantage.com

• Talos acquired Cloudwall, a crypto risk management platform. axios.link/4aTnb7p

5. Deals!

• Jean-Pierre Brulard was named CEO at Temenos. He was vice president at VMWare. axios.link/3w62mX9

• Amy Butte, former NYSE CFO, was named audit committee chair at Navan. Rich Liu, its former chief revenue officer, was named as CEO of Navan Travel. axios.link/44c5r4C

• David Derigiotis was named president of brokerage and head of insurance at Flow, formerly known as Capitola. He was previously chief insurance officer at Embroker. flowspecialty.com

6. It's personnel

Situational awareness: The U.S. Justice Department is seeking a 36-month sentence for Binance founder Changpeng Zhao.

🪹 @Lucinda has finally worn down her protein powder stash.

Thanks to George Moriarty and Rob Reinalda for today's edits.

And thanks to you for reading this edition of Fintech Deals. Please tell your fintech friends and protein powder suppliers about this newsletter. They can sign up here.

April 24, 2024

1 big thing: Apex Fintech's dwindling earnout