Good morning, Hubsters. Happy Monday. MK Flynn here on the Wire.
Let’s kick the week off with some insights into the forces driving tech deals in the banking sector.
Mission-critical. One Equity Partners is buying ACI Worldwide’s corporate online banking offerings for $100 million in cash. The deal was announced last week and is expected to close in the third quarter, when the target will operate independently under the new name, Dragonfly Financial Technologies.
I reached out to Chip Schorr, senior managing director, for his thoughts.
Dragonfly “is a gem,” Schorr said. “The solutions are mission-critical to their banking customers, and those banks’ important corporate customers, enabling seamless electronic payment management. We believe ACI did a terrific job replatforming the offerings and creating a leading cloud-based solution with a deep feature set. This is a solution purpose built for the next twenty years, with significant opportunities to add adjacencies to offer the customers an even deeper solution set. Furthermore, Dragonfly is one of a limited number of players with the full capabilities required to service the needs of the leading financial institutions.”
OEP plans to scale the business organically through investment while also pursuing inorganic growth.
Schorr has a lot of experience growing fintech businesses. He helped build I-Flex from a corporate carveout into a retail banking software platform that was eventually acquired by Oracle. Carveouts are a specialty of OEP’s, with nearly half the deals in its current fund being carveouts.
As for what’s ahead, Schorr said: “Given the importance of technology in financial services, and the mega-trends to continue to move physical world transactions virtual, the future of transactions in banking tech is very robust.”
For more, read the full interview.
Natural gas. Warburg Pincus recently invested $320 million into Viridi Energy, a renewable natural gas platform, to scale up decarbonization efforts. PE Hub’s Obey Martin Manayiti caught up with the firm’s principal, Jeffrey Luse – who focuses on energy investments – to hear more about the deal and how Warburg Pincus plans to grow the platform.
“We will be using natural gas for a long time, and understanding the most capital-efficient ways to reduce our carbon footprint is really important,” he said. “Renewable natural gas is proving to be one of the best methods to do that.”
He said Viridi Energy will explore both organic and inorganic models to grow the platform. Judging by the growth that the industry has experienced over the years, Luse said there is an opportunity for many companies to take a meaningful share within the next decade.
“This is not going to be a winner-take-all market; we do think there is absolutely room for multiple players to really share,” Luse said.
Seller’s market. The gap in expectations between buyers and sellers may be widening, according to the latest Private Capital Pulse Survey from BDO.
“While deal activity is expected to return to more ‘normal’ levels in 2022, fund managers foresee challenges in what continues to be a seller’s market,” the BDO report said. “Gaps between buyer and seller expectations is ranked as their top challenge to closing deals. Indeed, since the fall of 2020, the number of survey respondents who say the gap between buyer and seller expectations is their top challenge has been steadily increasing. This is likely because competition for a finite number of quality targets — those with attractive and reliable growth projections and solid business models — has intensified. Given the amount of dry powder available globally, as well as fundraising activity coupled with rising interest rates and decreasing valuations, it is likely that the gap between buyer and seller expectations will remain an area of concern. Though deal making resumed at record rates in 2021 and is forecast to return to a steady cadence this year, fund managers don’t think they’re out of the woods yet. An undercurrent of uncertainty arising from geopolitical events and economic developments — including Russia’s invasion of Ukraine, inflation and rising interest rates — continues to influence deal and fund strategy.”
At PE Hub, we’ll be watching to see how this all plays out in deals.
I’d love to hear your thoughts on today’s valuations. As always, please email me at email@example.com.