The UK seems to have become the destination-in-waiting for China tech and fintech acquisitions that fall foul of US government scrutiny around national security.
A little over a year after Ant Financial’s US$ 1.2 billion takeover of money transfer company Moneygram was blocked by the Committee on Foreign Investment in the United States (CFIUS) on national security and data security concerns, the Chinese payments mega-firm looks to have found a target that it can use as a basis for growing its non-China business. Ant is acquiring London-based payments and foreign currency provider WorldFirst for a reported US$ 700 million.
In a sign of the times, and showing extreme sensitivity to US reactions to the deal, WorldFirst abruptly shut down its US business to help ease the sale over the line and avoid negative scrutiny from a testy US government engaged in a politically-charged trade stand-off with China. “The closure is to take immediate effect; you will no longer be able to transact with WorldFirst from 4:00pm from February 20th, 2019,” the company said in a notice posted on its website. “WorldFirst US will be re-branded as Omega and subsequently operate independently of WorldFirst Group,” the notice said.
This looks drastic, but in taking this extreme step, WorldFirst is following the exact route taken by UK chipmaker Imagination Technologies, whose 550 million pound sterling sale to Chinese state-backed fund Canyon Bridge Capital Partners in 2017 was contingent on the sale of Imagination’s US CPU business, MIPS, which was bought by Silicon Valley firm Tallwood Venture Capital in the aftermath of the agreement in principal. Just like the WorldFirst deal, the Imagination transaction had come about quickly after Canyon Bridge’s US$ 1.3 billion takeover of the US’s Lattice Semiconductor Corp was nixed by the CFIUS, again on national security grounds.
Assuming it goes ahead and closes, the WorldFirst deal will mark a milestone in efforts by Chinese companies to broaden their footprints in Western fintech, but perhaps equally important to create more diversified revenue streams to ease competitive pressures at home.
WorldFirst will be subsumed into Ant’s mobile payments platform Alipay, but will apparently retain its brand. For WorldFirst’s founders and majority shareholders – ex-Citibank staffers CEO Jonathan Quin and former vice-chairman Nick Robinson – the ability to sell looks well timed. Sector observers are increasingly wondering about the place of monoline independent payment providers and their ability to resist the onslaught of Amazon and other corporate behemoths in the payments business as core components of their e-commerce strategies.
The sale of WorldFirst also looks like a sound cash-out play for US private equity firm FTV Capital, which bought into the company in 2013. FTV has a track record in this area, exiting start-up payments provider WePay in 2017 by selling to JP Morgan Chase.
Notwithstanding its reported stand-alone US$150 billion valuation, the fortunes of Ant Financial are closely tied to those of the Alibaba Group; more so since the latter acquired a 33% equity stake in Ant (supplanting their royalty and service fee arrangement) a month after the Moneygram setback.
Last June, Ant Financial raised US$14 billion in a private Series C equity round to “accelerate globalisation and technology innovation”. With advisors Deutsche Bank, Citigroup, CICC, CITIC Securities, JP Morgan and Morgan Stanley at the helm, the financing had a renminbi tranche and a US dollar tranche.
While the renminbi tranche was subscribed mainly by existing shareholders, the US$10 billion piece brought in a who’s who of big-name global investors, which Ant listed as having included GIC, Khazanah Nasional, Warburg Pincus, Canada Pension Plan Investment Board, Silver Lake, Temasek, General Atlantic, T. Rowe Price, Carlyle Group, John Ho’s Janchor Partners, Robert Citrone’s Discovery Capital Management, Baillie Gifford, and Fred Hu’s Primavera Capital.
“Funds raised will be used to accelerate Alipay’s globalisation plans and invest in developing technology to further enhance the company’s ability to deliver inclusive financial services to unbanked and underbanked consumers and small enterprises globally,” Ant said at the time.
The equity private placement had widely been seen as a precursor to an IPO. There does not appear to be any formal timetable for a public float; but perhaps more to the point, it is not immediately obvious what intrinsic benefits, if any, going public would bring to the table.