SPACInsider contributor Eric Weidemann this week compiled his three favorite potential SPAC targets among fintech targets based in the UK and Australia. We look at why they are compelling and why each could be a fit for a blank-check merger.
Technology and healthcare continue to be the leading focuses of the 418 SPACs searching for targets and 223 SPACs filed to IPO. But these are both very broad categories in the US economy and fintech, as a subsector, is nipping at their heels.
Forty SPACs are currently searching for healthcare targets or adjacencies, while 35 have specified financial services or fintech as their focus. Every week brings dozens of new SPACs to the market, but fintech is currently set to surpass healthcare as a sector focus with 15 new fintech SPACs filled to list against eight healthcare SPACs.
But, while the digitization of the financial space is turning over ever more market share to fintech companies, healthcare is twice as large as the financial services industry writ large. Health spending accounts for 17.7% of the US economy, while financial services, including insurance, accounts for just 7.4%.
This makes SPACs’ preference for fintech that much more disproportionate and the availability of targets that much tighter. As such, we’ve already seen several SPACs ink transactions in 2021 with fintech targets either based abroad or with a large portion of their operations outside of the US.
Prominent among these is Tel Aviv-founded eToro, which this week announced its $9.6 billion combination with Fintech V (NASDAQ:FTCV) and FTAC Olympus’ (NASDAQ:FTOC) $3.2 billion deal with Payoneer. Payoneer is based in New York, but primarily serves small business clients abroad across over 190 countries.
One of Payoneer’s main competitors is Airwallex, whose customers can open digital bank accounts in USD, GBP and AUD and make payments to others in over 130 countries.
The Melbourne, Australia-based company’s customer base is largely made up of companies that need to send and receive payments in a variety of currencies as seamlessly as possible. And, Airwallex is on the move.
Last month, it completed its acquisition of Hong Kong payments peer UniCard adding the target’s prepaid credit cards to its portfolio and gaining important licenses in the financial hub. Its clients already include Chinese ecommerce giants JD.com, Tencent and Alibaba, the latter two of which are also investors.
Airwallex’s deal for UniCard came on the heels of a $200 million Series D in 2020 designed to fuel its Hong Kong buildout while also setting it up to enter the US market. This raise valued it at about $1.8 billion, according to Yahoo, after the firm gained unicorn status just a year earlier through its $100 million Series C.
This trajectory is one that SPAC teams will want to get ahead of rather than behind, and the timing could now be fortuitous. Airwallex plans to hire about 300 people to make Hong Kong the centerpiece of its Asia-Pacific business. Its foray into the US has so far been a San Francisco toehold as it gathers the necessary licenses. But, it plans to rollout its platform to US customers in 2021.
We saw earlier this year the potential for “SPAC-as-launch-mechanism” deals when VPC Impact (NASDAQ:VIH) announced its $2.1 billion combination with Bakkt. Bakkt provides a payments platform that adds loyalty points, crypto and other digital assets to digital wallets and had been in complete stealth mode before bursting upon the scene with the deal announcement.
The market did not mind that Bakkt is just launching operations, as VPC Impact closed yesterday above $14 in a tough SPAC market. Airwallex similarly could use a SPAC announcement as a part of the story of its US debut.
While Airwallex knocks at the US’ door, UK-based Revolut is now making itself at home.
It offers a digital banking platform for business customers that allows for transactions in 14 currencies with next-day access to funds and no fees on the first £100,000 (about $139,500) in transfers. Beyond cross-border transfers, it has also set out to compete with banks on their more traditional offerings for travelers like no ATM withdrawal fees and even overseas medical insurance for $9.99 per month.
Revolut currently has about 15 million personal customers and 500,000 business customers with about 35 countries supported on the platform. The international rollout hasn’t been without its hitches, however, as the company scuttled plans to get a beta version in use in Canada after regulatory headaches and pulled out of the country in 2019.
It formally entered the US market in 2020 and is currently building out staff in New York. It has also not stopped widening its platform, as it has added two cryptocurrencies to wallets and wants to get into stock and commodities-trading.
Revolut is aware that it is the belle at the ball, however. Deloitte named it the fastest-growing technology company in Europe, the Middle East and Africa (EMEA) in 2020, and it aims to be the same in the US.
The company had about 150,000 customers in the US as of February 2021 and its US CEO Ron Oliveira told CNN that it aims to ramp that up to 1 million over the proceeding 12 months. Co-founder and CEO Nik Storonsky said that the company has already been courted by some SPACs and Revolut was also considering a traditional IPO.
Last valued at $5.5 billion, Revolut has the heft to run a dual process, but could potentially be enticed SPAC-ward by a team bringing some strategic accelerants to its US rollout. While its US debit cards are FDIC-insured, Revolut is still early in the stages of gaining a federal bank charter, a process that can take years and millions of dollars.
SPACs hunting for smaller game than the Revolut sweepstakes could still be attracted to London-based GoCardless and its fast-growing payments platform.
GoCardless process about $18 billion in payments per year and it specializes in setting up mass subscription payments across borders with lower fail rates. As many as one in 12 payments fails for a number of factors, and many large platforms do not proactively seek to rectify failures, but expect customers to just try again.
One major reason recurring payments fail is due to the expiration of credit and debit cards, which GoCardless’ open banking platform circumvents.
GoCardless was made just short of a unicorn with a $970 million valuation following its $95 million Series F, which included Bain Capital as a lead investor.
This round came as the company posted 46% year-on-year growth in 2020, and it is now available in over 30 countries with a global staff of about 450. It made its first move in adding the US to its footprint just last month with the opening of a New York office. The company already serves clients like DocuSign (NASDAQ:DOCU) and 8×8 (NYSE:EGHT) out of its San Francisco office.
Overall, it aims to increase its global headcount by two-thirds, largely through the funding of its last round. But, in the competitive world of fintech, $95 million can go fast and GoCardless would likely be receptive to offers for more fuel to burn.