EQT explores strategic options for Banking Circle

Citi and Morgan Stanley have been lined up to assist with the explorations, two of them said, with one adding that the mandates were awarded in recent weeks.

Preparations for a potential exit are expected to pick up after the summer, the first source added.

Options include a private sale and a merger with a blank-cheque company, as well as a listing via IPO, the sources said.

Any deal is likely to value Banking Circle well into the billions, two of the sources and a sector adviser said, with the first source suggesting somewhere between USD 5bn-10bn. The business generates sales in the region of USD 300m, one of the sources and the adviser said. Its EBITDA is said to be around USD 100m, this source added.

An IPO is perhaps the likeliest outcome given EQT’s tendency to hold on to its assets, while a Spac merger could be complicated by banking regulators, one source argued.

Though it offers crossborder payments infrastructure to banks and payments companies, Banking Circle operates a licensed credit institution. This means a Spac could have to go through the same change in ownership approvals as any other bank buyer, with the caveat that cash-shell vehicles are constrained by time pressures, this source added.

A sale to a strategic investor and another round of private equity are also possible, two of the sources and a second adviser said.

For example, digital payments providers like Wise, Stripe or Revolut could be attracted by its banking licences, one of the sources said. Global card giants Visa and Mastercard could also take a look in a bid to expand their infrastructure, another source said.

The timing of the explorations logically follows successful fundraising activity in the space, a third adviser said. It also comes as crossborder B2B forex platform Currencycloud is being sold to Visa for GBP 700m, the third source noted.

Digital banking start-up Revolut announced last week that it had raised USD 800m at a USD 33bn valuation, making it one of Europe’s top-valued fintechs. Meanwhile, Wise, which specialises in crossborder transfers, debuted on the London stock market earlier this month through a blockbuster direct listing that valued it at GBP 8bn.

Going public will be a real test for some of those fintechs that have so far been able to entice private market investors given the increased levels of scrutiny as listed entities and the need to appeal to a wider investor base, one sector adviser argued.

EQT’s advisers will likely pitch Banking Circle as a fast-growing fintech, and valuation expectations will be consequently high, he said.

The company’s growth rate is comparable with that of point-of-sale (POS) and e-commerce services provider Adyen, the first source said. Adyen posted FY 2020 net revenues of EUR 684m (+28% YoY) and EBITDA of EUR 402.5m (+27% YoY).

A wide peer group in public markets could also include incumbent players like Visa and Mastercard, one of the advisers said.

Banking Circle’s B2B offering is attractive because it generates sticky revenues, though the cost of acquiring and implementing new customers is high, the third source said.

Founded in 2013, Banking Circle was acquired by EQT in 2018 from Saxo Bank and other minority investors reportedly for around USD 300m. Last year, it received a banking licence in Luxembourg, where it is currently headquartered.

Since securing the licence, Banking Circle has doubled its client base to more than 150 financial institutions, including Stripe, Alibaba and Paysafe, according to its latest annual disclosures.

The company processed EUR 155bn of payments volumes in 2020, representing 6% of Europe’s B2C e-commerce flows, as per the release. It is aiming for EUR 250bn run-rate annual payment volumes and 100m annual bank transfers by end-2021.

Besides Luxembourg, Banking Circle has offices in Denmark, Germany, the Netherlands and the UK, as per its website. It has ambitions to expand into the US, one source said.

EQT, Morgan Stanley and Citi declined to comment. Banking Circle did not return a request for comment.

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• Topics
• Exits
• Benelux
• Financials
• EQT
• SPACs
• Fintech