Updated: Two UAE firms' IPOs set to drive M&A deals in Europe's payment solutions industry - analyst

Network International and Finablr could both use capital markets to tap investors to fund acquisitions

  
B.R. Shetty-Founder and Chairman of NMC group. Finablr has also been founded by the Abu Dhabi-based Indian billionaire. Image used for illustrative purpose.

B.R. Shetty-Founder and Chairman of NMC group. Finablr has also been founded by the Abu Dhabi-based Indian billionaire. Image used for illustrative purpose.

(Details of Network International's IPO added to paragraphs 2 and 7).

The potential listing of two United Arab Emirates payment firms on the London Stock Exchange could lead to them making consolidation moves into the European marketplace, an analyst has told Zawya.

Payments firm Finablr announced on Tuesday that it is considering an initial public offering on the London Stock Exchange, while an IPO of Network International took place on Wednesday, with the firm announcing that it had raised £555.4 million ($725.7 million) from investors.

“It is a bit of a shock for existing firms within that sector in Europe and it’ll drive more M&A deals,” Issam Kassabieh, a senior financial analyst at Menacorp told Zawya in a telephone interview.

“For any company that also lists as a payments solution provider… it’s hard to match the scale of these companies with fresh IPOs, so they would resort to consolidation,” Kassabieh said.

Founded by Abu Dhabi-based Indian billionaire B.R. Shetty, Finablr, a global platform providing cross-border payments, foreign exchange solutions and B2B and payment technology,  announced on Tuesday that it is considering an IPO on the London market with plans to raise a minimum of $200 million.

“We see rising popularity of digital payments over cash payments, which is why Finablr is interested in an IPO. With no doubt, it also coincides with the IPO of Network International as well. So we see two UAE entities show up on the IPO platform with different valuations as well,” Kassabieh said.

Last month, Network International, which is jointly owned by Dubai bank Emirates NBD and private equity firms Warburg Pincus and General Atlantic, drew strong investor interest following its announcement that it would seek a London listing. The firm attracted a $300 million cornerstone investment from Mastercard, with the listing giving the company a valuation of £2.18 billion ($2.85 billion).

The listing of both entities on the London Stock Exchange could not only provide a fillip for the relatively slow European IPO market but could also benefit both of the companies that have opted for London as the market for their shares. 

For Finablr, specifically, Kassabieh said it would provide a level of reassurance for potential investors.

“As a well-developed market in terms of regulatory infrastructure and in terms of investor presence, London Stock Exchange can offer strong marketing strategy for the firm. It would put it on the global markets for investors to see its abilities, its business model and unique technologies,” he said.

Market boost

Network International is set to be the largest initial public offering to take place on the London Stock Exchange so far in 2019 in a market that has been weighed down by Brexit concerns.

During the first three months of this year, proceeds of IPO listings in Europe dropped by 79 percent to $292 million, down from $13.9 billion a year ago, according to Eikon data. 

Yet in terms of opening the door for their own growth, Kassabieh said listings made sense for both firms.

“I believe in this domain inorganic growth is very effective because it saves a lot of steps and a lot of money in the long run,” he said.

“But the payment solutions industry overall has a lot of room for growth with the shift from cash to digital and with all of the talk on payments done through the blockchain for transparency and security reasons,” he noted. “But it is still quite expensive, because we are looking at a lot of infrastructure, so in the early years, these companies will not have the biggest returns, but in the long term, it’ll be a very rewarding sector.”

On Tuesday’s announcement by Finablr on its potential IPO, Kassabieh said: “The cash influx would further allow Finablr to develop its financial infrastructure, potentially developing its existing markets and also expanding into additional markets,” 

“It could be done organically by developing its own infrastructure or it allows it to pursue an acquisition. We’ve seen that Finablr looks for acquisitions through its subsidiaries, the same way the UAE Exchange acquired Travelex.”

Finablr has licensed operations in 44 countries and indirectly through agency relationships in over 170 countries, with brands that include UAE Exchange, Xpress Money and Travelex Holdings

The company said that intends to use the net proceeds from the issue of new shares to reduce its debt and finance expansion plans, adding that it is looking to have a free float of at least 25 per cent of the company’s issued share capital. It also said that it anticipates that that it would be eligible for inclusion into FTSE UK indices.

Documents filed by Finablr show that the firm processed more than 150 million transactions with a U.S. dollar equivalent of $114.5 billion last year, serving more than 23 million retail customers and 1,500 corporate and institutional partners. The group made adjusted earnings before interest, tax, depreciation and amortization of $210.4 million in 2018 – a 20.4 percent year-on-year increase.

(Reporting by Nada Al Rifai; Editing by Michael Fahy).

(nada.rifai@refinitiv.com)

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