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BFD Expert Voices - Private Credit

BFD Expert Voices

💰 Situational awareness: The IRS reported collecting $1 billion in taxes and penalties owed by hundreds of wealthy households that had accumulated past-due tax debts for years.

After two slow years, the M&A market is picking up as valuations reset and buy-side interest from both private equity and strategic acquirers increases, DC Advisory managing director Tommaso Zanobini tells Axios.

Why it matters: High-quality fintechs could have more suitors due to a glut of unused capital on the private equity side and higher public market valuations for strategic buyers.  

Context: Zanobini heads up the fintech team at midmarket investment bank DC Advisory, a subsidiary of Japan's Daiwa Securities Group.

Before that, he was global head of fintech at Moelis & Co., where he advised on transactions like the sales of Transact and First Data's European assets. 

(This interview has been edited for clarity and brevity.)

Over the past few years, we've seen a global slowdown in fintech M&A, but we've heard anecdotally that activity has been picking up lately. What are you seeing?

The activity is nowhere near where it was in 2021. [But] if you compare it to even last year, it's definitely picked up. There is definitely a different sentiment and a different volume of transactions coming to market. 

What has brought that is a comfort level that valuations have picked up some — they're nowhere near where they were in '21 — but they're at the point where people are comfortable with the level.

On the buy side, a lot of private equity is sitting on an enormous amount of unused capital that they need to deploy, otherwise they can't generate commissions and management fees. So there's a feeding frenzy on some of this opportunity to come to market.

You mentioned private equity, but what about strategics?

I think there's clearly a renewed appetite on the part of strategics to be active in the M&A market. That is also a reflection of their performance and share price. 

[For example,] FIS has doubled its valuation compared to last year. ... Now, they are still below their all-time high, but it's clearly giving them much more ammunition to pursue an M&A strategy.

You talk about companies like FIS being active in the acquisition market, but there's also pressure for them to divest some of the businesses they acquired several years ago.

There was a feeding frenzy of bigger is better, let's do everything ... and you really become like a massive financial supermarket. 

The theory of cross-integration across specific subverticals almost never works. I think that's exactly what's happening with FIS. That's what happened with NCR. 

So I actually see more [divestitures] rather than ... consolidation, because I think the market is asking for companies to be lean, very focused and very effective.

What are you seeing in the venture market?

I think a lot of funds have had significant issues raising capital. First funds are almost impossible right now. Unless you have an incredible pedigree ... it's really, really hard. 

Follow-on funds are all about performance. I have had several meetings with funds that had done very well raising additional capital, just because they had a pretty good return on the last one and the one before. 

[But] I've been hearing that a lot of [VC's] funding sources, whether they're pension funds or universities, want to see liquidity. A lot of VCs have had investments for 10 years-plus without returning any capital. 

So it's a little bit more of a challenge, which is why getting early-stage financing for a lot of startups has become not so easy. I see that that part of the lifecycle, probably the most delicate and the most difficult is seed to Series A.

Fintech M&A poised to rebound

a photo illustration of  Tommaso Zanobini, Managing Director at DC Advisory, surrounded by colorful lines and digital patterns

Photo illustration: Tiffany Herring/Axios; Photo: DC Advisory

Bain Capital agreed to take Envestnet (NYSE: ENV) private in a deal worth $4.5 billion including debt, the companies announced today.

Why it's the BFD: The wealth management software company has faced waves of tumult since its former CEO died in a car crash in 2019. 

Details: Reverence Capital also participated in the deal. BlackRock, Fidelity Investments, Franklin Templeton and State Street Global Advisors are expected to take minority stakes.

Envestnet, whose revenue comes from a mix of subscription and asset-based fees, posted $1.2 billion in revenue in 2023, up less than a percentage point compared with the year prior.

Its net loss jumped to $238.7 million, compared with $80.9 million the year prior.

Context: Envestnet has been the focus of takeover rumors since at least 2022, per Bloomberg.

Also in 2022, activist investor Impactive Capital took aim at the company, with Envestnet adding three Impactive board members to end the fight months later.

CEO Bill Crager, who took over the business after the death of co-founder Jud Bergman, stepped down in March.

State of play: The deal follows GTCR's agreement to take Envestnet competitor AssetMark private for $2.7 billion.

In December, Envestnet was exploring a sale of the Plaid competitor, which it bought for $590 million back in 2015, per Bloomberg. 

That data aggregation business had over 400 million linked accounts as of the end of 2023, serving 1,324 paid firms.

But it's bleeding revenue, which last year fell 14%, to $150.9 million. 

Bain and Reverence to take Envestnet private at $4.5B

Illustration of a handshake, repeated backward several times. 

Riot Platforms and Bitfarms' nearly yearlong battle appears to be escalating.

Why it matters: Bitcoin miners are strategizing post-halving — some are shifting focus to hosting AI data centers, and others are looking to get bigger by merger or acquisition.

Behind the scenes: What started as a friendly proposal to combine forces has turned into something of an activist campaign, with Riot launching a website called A Better Bitfarms, after amassing a nearly 15% stake in the rival bitcoin miner. 

"It's time to fix Bitfarms' broken corporate governance," the website reads and proposed three directors for Bitfarms' board.

It also said Bitfarms "botched its CEO succession plan" and that the company has had five chiefs over five years.

The site's launch coincided with Bitfarms naming a new CEO, an expected transition after internal drama. (Former chief Geoffrey Morphy was terminated after he sued the company for $27 million.) 

💭 Crystal's thought bubble: Riot has not said anything about investor activism as a business strategy, but it sure looks like it. 

Riot ramps up pursuit of Bitfarms

Illustration of two pixelated speech bubbles containing binary code clashing against each other.

⚖️ BitMEX pleads guilty to bank secrecy violation (Axios)

In a statement, the FBI's Christie M. Curtis said, "BitMEX not only failed to comply with nationally required anti-money laundering procedures designed to protect the US financial markets from illicit actors and transactions, but knowingly did so to increase the business's revenue."

🇪🇺 EU accepts Apple pledge to let rivals access 'tap to pay' (TechCrunch)

Apple has until July 25 to implement changes allowing developers of rival mobile wallets to offer contactless payment. The European Union's acceptance settles a long-running competition investigation.

🏦 McKernan wants clearer bank-fintech guidance (American Banker)

FDIC board member Jonathan McKernan yesterday called for regulators to give more-precise guidelines on managing risk when working with a third-party service provider.

💸 Payroc preps for more acquisitions (Payments Dive)

The Chicago-based payments processing company recently bought the payments business of i3 Verticals for about $440 million in cash and is looking at eight other potential acquisition targets. The firm is backed by Parthenon Capital Partners.

Credit Score

Illustration of an exam answer sheet with the words "credit score" hand written in red ink.

• Earned Wealth, a wealthtech advising doctors on their finances, raised $200m led by Summit Partners and Silversmith Capital Partners. Juxtapose, Hudson Structured Capital Management and Breyer Capital also participated. axios.link/464b5qC

• TBC Bank Uzbekistan, a mobile-only bank owned by TBC Bank Group (LSE: TBGC), raised $38.2m from its parent company, ERDB and IFC. axios.link/3Wkwetn

• Lemon.markets, a German Brokerage as a Service startup, raised €12m from CommerzVentures, Heliad, Creandum, Lakestar, Lightspeed and System.one. axios.link/3S4qKjF

• Adfin, a British invoicing startup, raised $4.9m in seed funding co-led by Index Ventures and Visionaries Club. axios.link/4eVM6tr

• Tread.fi, an algorithmic crypto platform, raised $3.5m in pre-seed funding led by New Form Capital. axios.link/3LfvdMO

• Bucksapp, a Paraguayan-Bolivian SaaS company, raised $1m in pre-seed funding led by iThink VC and BuenTrip Ventures. axios.link/3VWKQ0E

• Genstar Capital is in advanced talks to buy a stake in Austin, Texas-based payment processor AffiniPay at nearly a $3b enterprise value (including debt), per Reuters. Existing backer TA Associates would retain a stake. axios.link/4eWxzOe

• TA Associates invested in Indian lender Vastu Housing Finance. axios.link/4cY0P5w

• TowerBrook Capital Partners upped its offer for British payments group Equals Group (LSE: EQLS) to £253m. axios.link/3W13EvG

• Crédit Agricole (Paris: ACA) is in advanced talks to buy German consumer-finance firm Hanseatic Bank from Société Générale (Paris: GLE), per Bloomberg. axios.link/3LiLmRG

• Sovereign's Capital, an Atlanta-based faith-driven investor, closed its Venture Capital Fund IV with roughly $60m to invest in sectors including fintech. https://axios.link/4bDvNP2

Deals!

• Esfira Zakas was promoted from head of marketing to CMO at Payabl. axios.link/4czw8nj

• Sharon Geib, VP of finance at Woodforest Acceptance Solutions, was named CFO. axios.link/3xURyfw

• Intuit is cutting about 1,800 employees, or about 10% of staff, and shuttering two of its worksites in North America. However, the company plans to hire another 1,800 workers in fiscal 2025. axios.link/3xRWDFn

It's Personnel

🌃 @Lucinda enjoyed the NYC skyline last night.

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 data fans about this newsletter. They can sign up here.

1 big thing: Fintech M&A poised to rebound

2.  The BFD: Bain and Reverence to take Envestnet private at $4.5B

3. Riot ramps up pursuit of Bitfarms

4. Credit Score

5. Deals!

July 11, 2024

1 big thing: Fintech M&A poised to rebound