Monzo courts private equity after Nubank walks away
Eleven-year-old UK fintech searching for growth capital after bruising year of boardroom tussles
Monzo Bank is stepping up its efforts to court private equity investors after takeover talks with the Brazilian fintech giant Nubank collapsed over the up-to £10bn valuation the UK group was seeking.
The digital bank has in recent weeks held early-stage discussions with the European buyout group CVC and US private equity firm Advent International about selling a significant stake in the group. People familiar with the matter said Monzo was seeking to sell a stake of up to 15 per cent.
They added that a sale to a private equity fund was now the preferred option for Monzo after takeover talks with Nubank fell through and that Monzo’s advisers would turn their efforts to engaging with more fund managers.
Monzo had been trying to clinch a sale to Nubank in a deal that would have valued the UK fintech at £10bn. New York-listed Nubank, which has a market capitalisation of about $65bn, said on Wednesday that it would not be pursuing a deal.
People familiar with the matter said that the sides were unable to agree a price and that Nubank had instead decided to concentrate on growing in its home market and the US, where it has recently secured a banking licence.
Monzo could yet pursue a third option: tapping venture capital investors for a more traditional fundraising round. However, one person familiar with the board’s thinking said Monzo would prefer the private equity option as it would probably be a far larger investment and give Monzo access to more cash for growth.
Monzo, Nubank, Advent and CVC declined to comment.
Monzo has endured a difficult year, with a bruising fight between its board and investors over the company’s international expansion plans and long-awaited initial public offering.
The fintech’s board ousted then-chief executive TS Anil because of concerns about the pace of growth and whether he was committed to the business for the long term — a move that angered the company’s biggest investors.
Anil ultimately remained on the board, but was replaced as CEO by former Google executive Diana Layfield. Since taking the helm in February, Layfield has closed Monzo’s US offices and switched the focus of expansion plans to Europe, opening offices in Spain and securing a European banking licence from Irish authorities.
Anil — who stayed on as an adviser to Layfield — along with Monzo’s chief financial officer and former Nubank executive Tom Oldham helped broker the takeover talks, according to people familiar with the deliberations.
When asked last month about whether there would be more consolidation among direct-to-consumer fintechs, Oldham demurred. “I’m not sure on the consolidation point,” he told the FT. “I think we’re really just focused on growing our customer base at pace.”
He added: “If we see other great companies that are delivering against one of our customers’ needs, and we think that’s a good cultural fit for us, that’s a company that we like, then for sure we would look.”
But behind the scenes, São Paulo-based Nubank had identified Monzo as providing a potential foothold in Europe.
“You cannot look at the deal without looking at Revolut,” said one senior technology banker of Nubank’s interest in Monzo.
“If you’re looking at it from a financial point of view, the deal doesn’t make sense for anyone. But Monzo as a platform could turbocharge Nubank into developed markets, handing them a banking licence and more customers than Revolut in its own market.”
Although Monzo is a similar age to Revolut, it has long since been overshadowed by its larger rival. Revolut has grown to become a global player with 80mn customers and a $115bn valuation. Monzo reported just 15mn customers this year.
Nubank, which launched in 2013, has 140mn customers. But they are mainly in Latin America, and the company is seeking to take on Nik Storonsky’s Revolut to become the world’s dominant fintech.
Both have already secured US banking licences in recent months, while Revolut has also made moves in Colombia, Mexico and Argentina.
John Cronin, an independent banking analyst, said there were “only two ways” for Nubank to expand in Europe: “You buy your way in . . . or you build organically, which takes ages, and you’re behind in the race versus Monzo, Revolut and others scattered around the continent.”
Nubank’s top executives are aware of the difficulties around European expansion. David Vélez, the company’s billionaire co-founder, told the FT last month that UK growth would be costly and posed its own challenges.
“I would say there are more digital banks, it’s a very big market, [but] you still have access and cost problems . . . there’s still a significant lack of access to certain products, specifically on credit.”
The price tag for Monzo attached to its talks with Nubank had sparked scepticism, however. In a note to clients, equity research company Autonomous labelled the deal “financially questionable”, noting that a valuation of between £8bn and £10bn would be seven times Monzo’s tangible book value, far higher than competitors.
Autonomous added that in the mature UK market, it would be hard to monetise Monzo’s customers to make the transaction pay off. The $9 per month Monzo generates from each customer is only half the monthly average revenue per Brazilian Nubank customer, Autonomous said.
“Nubank would be paying a premium to its own valuation to acquire something that doesn’t generate the same returns as it’s currently generating,” the independent analyst Cronin said.
A venture capital adviser said Monzo and Nubank also served starkly different customers, with Nubank providing lending and banking services to underbanked customers in Latin America.
“Nubank is more mass-market and not necessarily known for higher-value customers. There are not a large number of underbanked people in the UK or Europe.”
But if Nubank balked at Monzo’s desired valuation, private equity firms without the same strategic rationale for a deal or operations to merge were likely to be even more price sensitive, making a deal difficult to pull off.
That could mean that rather than cashing out via a sale to Nubank, Monzo’s existing investors have to inject more cash into the UK fintech to fund its growth plans in pursuit of an exit at a later date.
Still, speaking to the FT last month, Oldham seemed unperturbed. “We’re super hopeful about bringing that sort of Monzo magic, as we like to say, to other markets,” he said.
Financials Results:
Guidance:
Sentiment Analysis:
Q&A: