By Shivaum Bapu, Daniel Winsor, Mohammed Safayat and Pristie Sharma (UCL) and Matilda Oculy and András Szabó (The University of Manchester)
Photo: Clay Banks (Unsplash)
Overview of the deal
Acquirer: SoFi Technologies Inc.
Implied Equity Value: $1.1bn
Total Transaction Size:
Announced date: Ongoing
Acquirer Advisor: Allen & Company LLC
The American financial services company SoFi Technologies Inc. will be acquiring the privately-held digital core-banking platform Technisys in an all-stock deal valued at $1.1bn. The deal, which is expected to close in Q2 2022, will see Technisys shareholders receive 84 million shares of SoFi Technologies' common stock.
SoFi seeks to use this deal to consolidate its banking services and establish itself as an all-in-one digital wallet provider. Combining the Technisys platform with SoFi's previously acquired banking infrastructure (Galileo) will enable SoFi to bring together the firm's banking, savings accounts, and credit card operations while resulting in revenue and cost synergies. SoFi is expecting to generate up to $800 million in cumulative revenues and $85 million in cost savings through 2025, the latter mainly achieved through third-party cost savings.
SoFi will see its geographical presence and customer base expand, mainly in Latin America, while hoping to find new customers in banks, fintech, and non-financial companies through a high level of service personalization and enhanced innovation.
“It's an all-stock deal, so it's a huge bet on both sides. We know our teach is there, and it's kind of unique. Now we have the possibility of fulfilling the dream, and making a transcendent technology and generate value for all the stakeholders." - Miguel Santos, Technisys CEO
Company Details (Acquirer - SoFi)
SoFi Technologies, Inc. is a Nasdaq-listed digital banking company initially founded in 2011 as a student loan refinancer. In the past decade, the company has expanded its portfolio of financial products and now offers personal loans, mortgages and savings, insurance, and investing accounts. In 2020, SoFi acquired payments platform Galileo Financial Technologies, which serves leading financial companies. The firm will leverage its acquisition of Technisys to combine the capabilities of both platforms to provide a wide range of financial products and a high level of personalization to their customers.
Founded in 2011, headquartered in San Francisco, California
CEO: Anthony Noto
Number of employees: 1,902 as of 2021
Market Cap: $8.53 (as of 25/02/2022)
LTM Revenue: $867.87mn
LTM EBITDA: N/A
LTM EV/Revenue: N/A
LTM EV/EBITDA: N/A
Company Details (Target - Technisys)
Technisys is a global digital banking platform provider operating in 16 countries. They help financial institutions, traditional and disruptors alike, transition to or advance their digital banking capabilities. They aim to improve the digital experience for the customers of these institutions while lowering costs by facilitating simultaneous new product and service launches across platforms.
Founded in 1995, headquartered in Ciudad de Buenos Aires, Argentina.
CEO: Miguel Santos
Number of employees: 1195
Market Cap: N/A
2021 Revenue: $70m
LTM EBITDA: N/A
LTM EV/Revenue: N/A
LTM EV/EBITDA: N/A
Projections and Assumptions
The acquisition is expected to generate cumulative revenues between $500 and $800 million and cost savings up to $85 million until 2025. Subsequent cost savings are projected to remain between $60 to $70 million. Apart from adding Technisys’s base revenues, the cumulative revenue increase is supported by revenue synergies stemming from vertically integrated capabilities. Identically, Sofi will realise cost synergies after changing from multiple third-party cores to the single-operated Technisys core. In addition to the financial benefits, the transaction will enable SoFi to expand geographically due to the complementary presence of Technisys, primarily in Latin America. Consequently, SoFi could expect to expand its consumer base considerably as Technisys currently serves 100 million customers.
The shareholders of Technisys will receive 84 million shares of SoFi, representing less than 10% of the number of SoFi’s fully diluted shares outstanding as of 22. 02. 2022. Following the announcement, SoFi’s shares fell 2.99%.
This acquisition is expected to increase SoFi’s already high revenue growth rate and 3-year revenue CAGR. SoFi estimates that, through 2025, Technisys’ base revenue and the revenue synergies generated from the vertically integrated capacities will lead to a cumulative $500-$800 million of additional revenues with high incremental margins. Moreover, SoFi will make third-party cost savings through actions like relocating its current third-party cores to a single Technisys core. Then, it aims to accelerate innovation and provide more real-time decision-making and personalisation to its members. These plans should generate cost synergies totalling in the range of $75-$85 million from 2023-2025 and around $60-$70 million after 2025. Without taking all this synergy potential into account, SoFi expects to receive an internal rate-of-return in 2025 in the mid-teens, which shows how significant the internal rate-of-return would be after accounting for these expected synergies.
Risks and Uncertainties
The $1.1 billion acquisition comes with risks and uncertainties, among them the high price SoFi is paying for the deal. While SoFi expects to generate savings through Technisys' proprietary technology and increase its revenues, it remains to be seen whether these financial projections materialise.
SoFi is also entering the core processing sector and expanding beyond the fintech space. The core processing sector is heavily competitive, with high barriers to entry, with a few companies such as Fiserv, FIS, and Jack Henry, controlling about 80% or more of the global market share. According to the Motley Fool, “Pitching core systems to banks is a long sales cycle and results in long-term contracts and the task of switching core systems is onerous, largely because banks need to navigate the transition while not disrupting daily operations too much.” To add to this, Fiserv, one of the largest players in the space, has recently announced that it plans to acquire Finxact, another innovative cloud-based core processing company that offers many of the same capabilities as Technisys.
“The acquisition of Technisys is an essential building block in delivering on our member-centric, digital one-stop-shop experience for SoFi members and our partners through Galileo, our provider of fintech cloud services." - Anthony Noto, SoFi CEO