SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among revenue-generating fintech companies that are nearing profitability. We look at why they are compelling and why each could be a fit for a blank-check merger.
Over the past month, we’ve seen macro conditions push SPACs in some cases out of their most recent hunting grounds from – high growth tech plays to stable, cash-generating companies aiming somewhat lower than the Moon.
But, there are still opportunities for SPACs to operate within their high-upside comfort zone and still snare a target with the financials to fit the current market climate. Among venture-backed fintech firms, those two criteria may not be common, however.
After all, even among larger listed fintech companies, maintaining their growth headings with enough free cash leftover to impress an inflation-stricken market has not been easy for all. For instance, Bill.com (NYSE:BILL) announced earlier this month that it had increased transaction fees 286% year-over-year in the last quarter, but still carried a net loss of $86.7 million on $166.9 million in revenue and has traded down about -24% since.
As such, the way that growth and public valuations are increasingly disjointed should only make SPAC transactions more attractive to fintech sellers. A SPAC can shop a deal to its own investors based on a discount to already depressed fintech valuations, but still offer the target company hefty earnouts rewarding their growth and operational achievements.
10x Banking Technology Services
While most fintechs have worked to disrupt consumer payments and banking services, 10x Banking Technology is seeking to digitize core internal banking functions.
The London-based company has approached this by not only replacing old banking processes, but giving them the tools to do it themselves. Its SuperCore platform, which it offers to clients on a SaaS basis, allows banks to create and update financial products quickly and without the involvement of IT.
Applications created through 10x Banking’s suite are cloud-native and come with their own cybersecurity shielding. Some 10x clients have taken things one step further beyond their own internal systems and used 10x software to generate their own banking-as-a-service (BaaS) products to business clients.
Major Australian bank Westpac (ASX:WBC) used 10x to build and launch a BaaS platform in 18 months. 10x hasn’t publicly released details on the structure of its SaaS contracts, but it stands to reason that a collaboration of that scale with a $60 billion-market cap bank generates significant revenue.
Even before the Westpac collaboration, 10x notched about $66 million in revenue in 2019, which was itself a four-fold increase from the year before. While it hasn’t tipped its hand on financials much since, it finished 2019 with a relatively low net loss of -$2.9 million and may have already achieved profitability in the intervening years.
Founded and led by former Barclays CEO Antony Jenkins, 10x last raised $187 million in a June 2021 capital raise that drew investment from BlackRock (NYSE:BLK), JP Morgan Chase (NYSE:JPM) and Canada’s pension plan, the CPP Investment Board.
This has given it strong institutional validation that could be further solidified with these investors jumping into a PIPE for the next stage of 10x’s development.
The insurance edge of fintech has been an up and down sector for SPACs of late. Among the five de-SPACs from the space that closed their deals since 2020, three are trading below $2 while the two others – CCC Information (NYSE:CCCS) and Hagerty (NYSE:HGTY) closed Thursday at $8.78 and $10.90, respectively.
Berlin-based WeFox has the potential to find itself among the winners of that cohort, however. Like, 10x, it is not a direct-to-consumer (DTC) player, but instead creates insurance and financial products that are distributed by independent brokers.
Kin Insurance, which inked then walked from a SPAC deal in January, has premised its business on the disappearance of brokers, but WeFox believes they are both here to stay and provide an efficient outsourcing tool.
It generated $140 million in revenue in 2020, and its insurance division is already profitable. WeFox projected as of June 2021 that it would reach overall profitability in 2023, which is just around the corner if it has maintained this heading. It disclosed these figures while closing a capital raise that bumped its valuation up to $3 billion and provided fuel for its expansion into the US market.
With those efforts nearly a year old, Concord II (NYSE:CNDA) could be a potential SPAC partner to intensify the US rollout. It raised about $280 million in its September 2021 IPO and its team may be eager for a more straightforward fintech target after riding some volatile waves with their other SPAC, Concord (NYSE:CND). Its deal with crypto payments platform Circle has been pending since last July.
Just as WeFox bridges the gaps between fintech and insurance, Feedzai keeps one foot in the fintech bin and the other in cybersecurity, because not all risks associated with online transactions are strictly hacks or attacks.
San Mateo, California-based Feedzai collects transactional intelligence and found that in 2021, fraudulent transactions grew about 3.5 times faster than total online purchases themselves. To help companies avoid this, it not only handles the payments side of online selling, but also tracks customer patterns to screen for suspicious activity.
While Feedzai’s software is primarily targeted at avoiding fraud, it has similar byproducts on the data side as loyalty programs and other marketing intelligence efforts. Thus, Feedzai clients gain increased customer engagement opportunities while securing their own network.
Given the dozens of subscription tools companies are forced to sign onto these days, this consolidation of purpose has led to steady growth for Feedzai. It ended its 2021 fiscal year with 40% year-on-year growth in annual recurring revenue and it tracked about 19 billion transactions for $1.7 trillion in total value during that time.
Fifty-one SPACs are currently searching for a fintech target of some sort, and among the prominent ones that would need to announce a transaction soon is Ribbit LEAP (NYSE:LEAP), which has about $402 million in trust and an initial transaction deadline hitting on September 15, 2022.