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Adyen lost $13 billion in market cap last month when investors scrambled to sell shares after the payments company missed quarterly revenue targets. But it’s not the only one facing the music in fintech. Shares in SumUp, a privately-held European payment technology business that focuses on point-of-sale transactions, are currently being sold in inside sales (to other existing investors in the company) at a valuation that might be as low as $4.1 billion — a drop of nearly 52% on SumUp’s previous valuation of $8.5 billion, achieved when it raised $624 million in June 2022.

Several of SumUp’s investors are selling off shares, but the news was made public by just one: Groupon, which is traded in the U.S. on Nasdaq, disclosed the transaction in an SEC filing. Its 8-K form noted that the share purchase agreement, made on October 6, represents 9.4% of the company’s 2.3% interest in SumUp. The sale, it said, would yield Groupon €8.4 million, or around $8.9 million.

The class of shares getting sold is not being made public, hence the question mark about the total resulting valuation for SumUp.

“The Purchase Agreement was entered into in connection with a transaction in which several other investors in SumUp also agreed to sell shares on the same economic terms as the Company,” the filing noted. Groupon said it expects the transaction to close by October 23, and that the buyers are other existing shareholders.

SumUp, which has its roots in Berlin, is headquartered in Luxembourg, and it offers point of sale technology and related business services. In addition to Groupon, SumUp has around 35 investors, including the likes of Bain, BlackRock, Global Founders Capital, Oaktree, Amex and BBVA.

SumUp confirmed the secondary transaction to TechCrunch but would not comment on valuation. In a statement, it also said SumUp investors “continue to support SumUp through additional investment.”

It declined to say whether there would be more equity funding coming up; the company announced a $100 million credit facility in August from Victory Park Capital to build out a cash-advance product for merchants.

“Our shareholders from time to time trade among themselves and are able to set a share value expedient to their requirements at the time of their trade. Small secondary transactions between existing shareholders often are not representative of the true value of the company, especially where different classes of shares change hands,” a spokesperson said. “The global investment community, as well as existing SumUp investors, recognized our ability to scale and our remarkable long-term prospects and continue to support SumUp through additional investment. We can’t comment on the buyer of the shares at this time.”

Overall, the fintech market has not been spared in the downturn in funding that has hit the technology industry. Research from Tracxn found that in Q3 total funding in the U.K. — the capital of fintech in Europe, and thus a bellwether for how fintech as a whole is doing — dropped by 77% in to $279.1 million versus $1.2 billion a year before, with no rounds breaking the nine-figure mark among them and no newly minted “unicorns.” Payments startups, along with those in insurance and remittance, stood out as the best performers, it added.

The market has seen other valuation haircuts among fintechs that are still private. Among them, Stripe in the U.S. halved its valuation to $50 billion earlier this year. And in Europe, Checkout.com, once valued at $40 billion, reportedly now has an internal valuation of less than $10 billion.

As for Groupon, at the end of March, the Chicago-based local deals marketplace appointed a new CEO out of Czech Republic, Dusan Senkypl, whose firm had become a majority shareholder of the company. Groupon has been doing better since then: When Senkypl took over, the company had a market cap of just $103 million. Today, it’s bounced up to over $300 million. But it has not fared well on the back of today’s depreciated share sale: The stock dropped more than 35% in trading on the news.

Investors with ‘control intent’ will have to report holdings over 5 per cent within five days

Hedge funds and other activist investors looking to sway US public companies will have to report large stakes they have built within five days rather than 10, in the first overhaul to disclosure timelines in decades.

The rules adopted by the Securities and Exchange Commission on Tuesday will apply to investors amassing stakes of more than 5 per cent in a company. The SEC said its reporting timelines for investors with and without the intent of influencing control of a business had not been amended since 1968 and 1977 respectively.

The rules, which come as the SEC heightens scrutiny of the ballooning private funds industry, will most heavily affect activist investors such as Elliott Investment Management and Trian Partners. Shorter deadlines could hamper such investors’ ability to build stakes above the 5 per cent mark in secret and diminish the profits they often gain once their positions become public.

The SEC said the updated disclosure process was aimed at informing investors and the market more quickly in the wake of technological changes that have swept across Wall Street in the intervening decades. 

“Frankly, these deadlines from half a century ago feel antiquated,” Gary Gensler, SEC chair, said in a statement. “In our fast-paced markets, it shouldn’t take 10 days for the public to learn about an attempt to change or influence control of a public company.”

The agency has halved the deadline for investors with “control intent” to reveal a stake of more than 5 per cent to five business days. Such investors will have to file disclosure amendments within two business days, up from the one business day the SEC initially proposed. 

The rules have also shortened deadlines for investors with no “control intent”, such as qualified institutional investors. These must now report significant stakes within 45 days after the end of a calendar quarter rather than a calendar year. Passive investors, meanwhile, must make disclosures within five business days, down from 10.

The SEC said it would extend its “cut-off” filing times from 5:30pm to 10pm Eastern Time to “ease filers’ administrative burdens”.

Under the rules, investors crossing the 5 per cent threshold will now have to disclose all their interests in a company, including security-based swaps, which is how activist investors tend to build stakes secretly. 

Hedge funds warned that the rule would make activist investing less attractive because other investors would jump in and drive up the price of companies while funds were building their positions.

“The shortened deadlines will reduce market efficiency as investors now have less incentive to identify and fix mismanaged companies,” the Alternative Investment Management Association said.

But Stephen Hall, legal director and securities specialist at Better Markets, a financial reform advocacy group, on Tuesday said the final rule was a “welcome step” that would “increase transparency and fairness for all market participants”.

Lower sales of spirits and handbags hit LVMH growth

World’s biggest luxury group says it remains confident despite ‘uncertain’ environment

Sales growth at luxury conglomerate LVMH slowed in the third quarter, as demand for handbags moderated and that for spirits fell after several years of stellar growth.

The French group, controlled by Bernard Arnault, said sales grew 9 per cent in the third quarter to €19.9bn, down from a 17 per cent rise in the preceding quarter, reflecting softer luxury sales worldwide, notably in the US and Europe.

Sales in Asia excluding Japan grew at 11 per cent in the quarter, down from 34 per cent in the previous three months, while the US continued the trend of low single-digit growth from earlier in the year as aspirational consumers pulled back on spending. In Europe, most countries were now growing in the mid single-digit range, according to LVMH chief financial officer Jean-Jacques Guiony.

Guiony said there had been “no marked change in the business we do with the Chinese clientele” in the most recent quarter, but he noted that people were travelling abroad more and could be shopping there.

However in Europe he said “we’ve seen slight drops in the third quarter compared to mid single-digit growth in the first half of the year . . . time will tell, depending on the depths and lengths of the cycle, whether it was a [change] in consumption or merely a blip after three extraordinary years”.

Sales at LVMH’s fashion and leather goods division — its biggest — grew 9 per cent in the third quarter, a slower pace than the 21 per cent growth in the second quarter. Selective distribution, which includes travel retail and Sephora, had the fastest growth at 26 per cent this quarter.

However, wines and spirit sales fell 10 per cent, which LVMH said was linked to a post-Covid normalisation of demand and the tougher economic environment in the US, particularly for cognac sales. 

“In an uncertain economic and geopolitical environment, the group is confident in its continued growth . . . LVMH is counting on the dynamism of its brands and the talent of its teams to further strengthen its lead in the global luxury market in 2023,” the company said.

The headline figure comes in below Visible Alpha’s consensus estimate of 11.5 per cent sales growth in the quarter for LVMH, which owns 75 brands ranging from fashion houses Louis Vuitton and Dior to beauty retailer Sephora. 

LVMH is the luxury industry’s biggest group by far and regarded as a bellwether given its size and influence. Luxury companies had already reported a slowing pace of growth in the US, the industry’s largest market, last quarter. Tighter economic conditions in China, which has been the motor for the luxury industry’s record sales from early 2020 onwards, have also set the stage for the sector to experience more moderate growth.

“We expect a broad-based growth normalisation in the third quarter, with demand from European locals normalising, and less support from tourism flows,” wrote analysts at HSBC. “The performance in the US is unlikely to have improved despite facing an easier basis of comparison.

“China is [also] facing a tougher basis of comparison, and the macro environment is unsupportive, likely leading to a sequential slowdown,” they warned.

“Contrary to past quarters such as Q2, where the sluggishness in the US was more than offset by a rebound in China, this time we do not see any compensating factor; but rather, a broad-based normalisation of growth across all geographies,” HSBC wrote. 

Shares in LVMH have risen around 20 per cent in the past 12 months despite falling by around 12 per cent in the past half year, as investors worried the luxury boom had faded.

LPs worry that use of NAV and margin loans relies on financial engineering rather underlying portfolio performance

Investors are stepping up scrutiny of private equity firms’ use of debt and complex financial engineering to generate returns from companies they own, demanding disclosure about the costs and risks.

Private equity groups have been increasingly using margin loans and net asset value financing — secured against shares in their listed companies or their asset portfolios — to boost returns and fund distributions to investors, after a slowdown in dealmaking reduced their options for selling businesses on.

But some investors worry they have tilted returns too far towards financial engineering, rather than companies’ underlying performance.

The Institutional Limited Partners Association, an industry body representing private equity investors, is examining borrowing strategies and drafting detailed recommendations. These will call for the industry to provide justification for the loans and more disclosure of their costs and risks to investors, said two people familiar with the details. 

Advisers to large investors have also been checking contracts to assess whether they can stop firms from using NAV loans to return cash to investors without their consent, other people close to the situation told the Financial Times.

Investors have also begun demanding restrictions that force firms to seek approval for such borrowing when they raise a new fund, the people said. 

In July, the FT reported private equity firms including Vista Equity Partners, Carlyle Group and Hg Capital had used NAV loans to finance cash distributions to investors.

“I’ve heard a lot of reasons why [using NAV loans] has created a lot of concern,” said Andrea Auerbach, partner at Cambridge Associates, a US group that advises institutions on private investments.

“One of my concerns is that this will become a part of the fund management toolbox,” she added, noting the rise in NAV financing could make it harder for investors “to understand the percentage of the return that comes from fund finance versus the actual investment return”.

In addition to NAV loans, private equity firms are also using margin loans to raise cash. According to securities filings reviewed by the FT, many of the industry’s biggest names, including Blackstone, Apollo Global, Warburg Pincus, and General Atlantic, have taken out such loans in recent years.

A margin loan involves pledging shares to a bank as collateral for a loan. In the private equity industry, this typically amounts to 20 per cent of the total shareholding. The cash is then distributed to investors, creating an investment gain without selling stock.

Generally, private equity firms earn profits for their investors by listing or selling businesses. But this can be a slow and volatile exit pathway, while selling down shareholdings can take years and depress the price.

Margin loans can improve an investment’s internal rate of return by realising profits more quickly and can have tax benefits, said executives working on such transactions.

But they can also be risky because a large share price fall can trigger a collateral call, something buyout firms are not well set up to deal with.

Blackstone, the world’s largest private equity firm, has been a major user of margin loans in recent years. Securities filings show that in 2021, it pledged all of its shares in dating app Bumble, which it listed the same year, to secure an $860mn loan from Citibank to return capital to investors.

After Blackstone took out the loan in June 2021, Bumble’s shares dropped from nearly $60 per share to just over $30 by the end of the year, before falling further.

A disclosure this March showed Blackstone had sold millions of Bumble shares and repaid some of the loan, leaving it with outstanding borrowing from Citi of $455mn. Bumble’s stock has fallen more than 40 per cent since early March.

Other firms are common users of margin loans. Over the past six years Apollo has borrowed against shares in five companies it listed, including ADT, Rackspace, Hilton Grand Vacations, TD Synnex and OneMain Financial, according to securities filings.

Since Apollo borrowed against all of its Rackspace shares in December 2020, the software company’s stock has fallen more than 90 per cent.

Blackstone and Apollo declined to comment.

While margin loans have been used by the industry for more than a decade, bankers and lawyers who spoke to the FT said they are being used more frequently to allow firms to extract cash from investments they do not want to sell or cannot sell at a profit.

“I have seen a pick-up of margin loans over the past six months,” said one private equity adviser, adding that firms were using the loans in part for “distributions for [investors]”.

Some industry executives consider margin loans too risky. “I told our team, don’t do that,” the managing partner at one large private equity firm said. “It is a real short-term opportunity.”

Another executive said: “I don’t think it would be attractive to do this, unless you have a burning desire to return capital.”