Citi's FIG business has added fintech to its three traditional 'verticals', such is the importance of the industry. The team responsible for fintech explain to Edward Russell-Walling how the bank gives up-and-coming companies a scale and expertise that is hard to find elsewhere.
Standing, from left: Tom Isaac, David Abashidze, Niall Carey, Per-Henrik Lewander, Erik Arveschoug, Jean-Baptiste Petard, Piers Davison; Seated, from left: Henriette Hessen, Sharronjeet Khela, Mark Litz, Denisa Dumitrescu
As fintech businesses grow, so do their corporate finance needs, from debt and equity raising to mergers and acquisitions advice. And they can grow very fast indeed. Citi’s fintech team, which brings together its banking knowhow in financial institutions and technology, has been winning mandates.
“Two years ago, Citi decided to invest resources, capability and content in the fintech space,” says Per-Henrik Lewander, the bank’s Stockholm-based head of the financial institutions group (FIG) for Europe, Middle East and Africa (EMEA) corporate banking. “We saw the opportunity to selectively enlarge our target market and selectively – not across the board – invest in new client relationships,” he adds.
Choosing the right fit
But how does the bank see fintech? “It takes many forms, some of which we understand very well in FIG,” says Mr Lewander, pointing to payments businesses, market infrastructure businesses, wealth and asset management, and e-commerce. Citi’s telecoms, media and technology team very much understands technology businesses, he continues, saying: “So we decided to put our heads together and, from a banking perspective, create a fintech team that can work in partnership with and add value to clients.”
Citi’s FIG business traditionally had three ‘verticals’ – banks, insurance and asset management. To those it has now added a fourth: fintech. It operates against the backdrop of the bank’s global network and value proposition. “Our product offering is very relevant to fintech,” says Mr Lewander.
The large corporates of the 1960s and 1970s took decades to roll out. Fintechs are born and within two years they want to be in 20 countries
Earlier in 2018, Citi was the exclusive financial adviser to the shareholders of Swedish online payments company Trustly, in its sale to Nordic Capital. Trustly, founded in 2008, featured in the FT1000 list of Europe’s fastest growing companies. Its direct payments technology enables seamless bank account-to-bank account transmission without going through a third-party card company.
In November 2014, Bridgepoint Development Capital announced it had agreed to acquire a minority stake in the business for €23m, becoming the largest shareholder. During its tenure, the business reportedly more than doubled its revenues and grew its international footprint from nine to 29 countries, all in Europe. Today, Trustly offers cross-border payments between accounts at more than 3000 banks. As a leader in the evolution of the payments business, the company has significant growth potential from both product and geographical expansion – quite possibly in the US.
While Trustly used a number of banks, it recognised Citi as an important transactional banking partner, according to Mr Lewander. So when Bridgepoint decided to sell its stake, Trustly’s shareholders retained Citi to advise on a potential exit through a dual-track process.
Following strong interest from potential buyers, the shareholders agreed to sell a majority stake of more than 50% to private equity investor Nordic Capital for an undisclosed sum. While Bridgepoint exits entirely, the founders remain shareholders alongside Swedish investment company Alfvén & Didrikson.
“The payments landscape is evolving,” says Mr Lewander. “New solutions are being offered to the market, resulting in some very profitable companies that are quite young.”
Changing landscape
Citi was also joint lead financial adviser and Rule 3 adviser (under the UK Takeover Code), alongside Evercore, in the agreed acquisition of NEX by Chicago’s CME. This was announced in March and is expected close during the second half of 2018. Citi has a long-standing relationship with NEX and was a corporate broker to the company. NEX, an electronic markets and post-trade operator, was the vehicle of entrepreneur Michael Spencer. It was what was left of Icap after he sold the voice broking business to Tullett Prebon in 2016, to become TP Icap.
“Financial services was one of the last industries to be disrupted, as people came in and spotted inefficiencies,” says Piers Davison, Citi’s co-head of FIG EMEA, corporate and investment banking. “But in the past two years in particular it has begun to pick up.”
The Icap sale happened because of Mr Spencer’s vision of where his world was headed, says Mr Davison, and that also drove the NEX transaction. “Scale was getting more important,” he says. “CME is a leading futures exchange and NEX is a leading cash market, so CME was an obvious partner.”
If Citi had a long-standing relationship with Mr Spencer and his businesses, so too did Mr Davison. Back in 2006, while at JPMorgan, he advised Icap on its acquisition of EBS, a foreign exchange and commodities trading platform.
In March, an agreed CME bid was announced, valuing NEX at £3.9bn ($5.14bn), to be paid half in cash and half in CME stock. “[This is] a unique opportunity to create a leading client-centric global markets company, generating significant efficiencies across futures, cash and over-the-counter products at a time when market participants are seeking to lower their cost of trading and better manage risks,” the exchanges announced.
CME identified $200m-worth of synergies, achievable by 2021, principally from operational and IT consolidation, as well as sales and administrative cost savings.
The payments landscape is evolving. New solutions are being offered to the market, resulting in some very profitable companies that are quite young
One of Citi’s responsibilities under Rule 3 was to advise the NEX board that the deal was in the best interests of shareholders. “We felt the terms reflected good value,” says Mr Davison. “In fact, we think this is an industry-changing transaction, improving client access to trading, and creating greater efficiencies.”
Picking a winner
The banker who coordinates fintech strategy for Citi globally within the corporate bank is Erik Arveschoug, global co-head of telecoms and media, corporate banking. “One of the things we try to do is to identify winners and losers in fintech,” he says. “Then we can see where we want to place our bets, who we want to partner with, to on-board as a client, to go further and deeper with to co-create products and services.”
Some clients are also providers of services to the bank, such as Equiniti, with whom Citi has had a relationship for over a decade. It has provided several corporate banking products and services to the group since its public listing in 2015.
Equiniti developed out of the share registration business of the UK’s Lloyds TSB Bank, and is the share registrar for about half of the FTSE 100 companies. It also provides administration services for pension schemes and complex or regulated activities.
“It is a technology company within a financial services business,” says Mr Arveschoug. One of its activities is to provide payments on behalf of the UK government to pensioners living abroad, and Citi is often the bank involved.
In 2017, Wells Fargo decided that its share registration business (the third largest in the US) was not a core activity and began discussions with Equiniti about a possible sale. By July 2017, Equiniti was able to announce that it would acquire Wells Fargo Share Registration & Services for a cash consideration of $227m.
The cash and Equiniti’s acquisition expenses were financed by a £122m fully underwritten rights issue, equal to 16% of the company’s market capitalisation, and £120m in fully underwritten new debt facilities. The rights issue was launched in September 2017.
Citi was joint financial adviser and joint sponsor, alongside Greenhill, and joint global coordinator and bookrunner, with Barclays. It was also joint debt underwriter with Barclays and Lloyds Banking Group.
“It was a happy transaction for both sides, in which each got what it wanted,” says Mr Arveschoug. There is an excellent strategic fit, with meaningful cost synergies achievable in the first three years. What is more, it transforms Equiniti into a multinational business, with entry into the US, a market that offers strong development opportunities.
Going global
Mr Arveschoug adds that, for fintech businesses, a powerful differentiator for Citi is its global nature. “The large corporates of the 1960s and 1970s took decades to roll out,” he says. “Fintechs are born, and within two years they want to be in 20 countries.”
Given Citi’s global footprint, Mr Arveschoug says that if such a fintech did not go with Citi, it would need multiple banks to achieve the same reach – with the complexity this would add to their business. “But they can rely on us around the world,” he concludes. “As all this demonstrates, we are very focused on fintech.”
