Funding Circle $2.6 Billion IPO Tests Post-Adyen Fintech Demand

(Bloomberg) -- Funding Circle Ltd.’s initial public offering will test whether investors have a lasting appetite for Europe’s maturing fintech scene after a flurry of stock sales.

The eight-year-old British online loan provider, which has yet to turn a profit, is likely to publish its pricing range as soon as tomorrow, according to people familiar with the matter who asked not to be identified. A Funding Circle spokesman has previously indicated that its valuation post-IPO should be about 2 billion pounds ($2.6 billion).

The dilemma for potential buyers will be whether its prospects look more like the profitable Dutch payment processor Adyen NV -- which is still more than twice its June IPO price, despite its slide since insiders sold more stock last week -- or U.S. firms, more similar to Funding Circle, that have been disappointments as public companies. On Deck Capital Inc. and LendingClub Corp. are both below their 2014 offering prices.

“Any fintech firm planning an IPO will be eyeing the opening-day pop and consequent returns from the last major European fintech -- Adyen -- when considering valuations,” said Anil Akbar, an analyst at Kempen & Co. in Amsterdam. “But investors should distinguish between different fintech firms, because not all names in the sector are profitable.”

Analysts at banks advising on the sale are comparing Funding Circle to U.K. tech firms as diverse as food-delivery company Just Eat Plc and property portal Rightmove Plc, as well as fintechs in different lines of business, like payment processor PayPal Holdings Inc., the people said.

Adyen’s first day of trading in June recalled the heyday of the dot-com era, with the stock more than doubling. On Sept. 12, Adyen saw some of its pre-IPO investors take advantage of the shares’ continued flight, placing about 1.7 billion euros ($2 billion) of equity at a near-10 percent discount after a lock-up agreement was waived.

Adyen “should have no impact on the Funding Circle IPO, given that there is not a finite pool of money that can invest in fintech,” said Ron Heijdenrijk, an ABN Amro analyst who covers the Dutch firm. “That said, while both fintech, the market’s demand for exposure to payment services is not necessarily equal to demand for exposure to peer-to-peer lending.”

London-based Funding Circle, formed in 2010 by three friends from Oxford University, was initially a peer-to-peer lender that matched individual retail investors with small companies. Unlike LendingClub, it never focused on consumers. As it grew, Funding Circle turned to other sources of funding, like big insurers and government agencies seeking to get more credit into the economy.

Desai Stake

A spokeswoman for Funding Circle declined to comment. Bank of America Merrill Lynch, Goldman Sachs Group Inc. and Morgan Stanley are managing Funding Circle’s share sale, with Numis Securities as joint bookrunner.

Chief Executive Officer Samir Desai holds about 7.6 percent of Funding Circle’s equity, and that stake is set to be worth about 150 million pounds if his firm gets the valuation he wants. The company is aiming to raise 300 million pounds selling new shares on the London Stock Exchange in an offering backed by Danish retail billionaire Anders Holch Povlsen.

Desai has said the company plans to use the fresh capital from its IPO to expand in its current markets -- Britain, the U.S., Germany and the Netherlands -- with more advertising campaigns and funding deals. In the longer term, the firm plans to expand into more countries. Having arranged more than 5 billion pounds in loans, Funding Circle hasn’t been slowed down by Brexit. It recorded 94.5 million pounds in revenue in 2017, an 86 percent jump from 2016.

Wherever the stock settles, it’s now a currency that Desai can use to make deals, said Ramin Niroumand, the Berlin-based co-founder of FinLeap GmbH, which advises fintech startups and hasn’t invested in Funding Circle.

“The next stage of market development is likely to be consolidation, and the IPO could accelerate that,” Niroumand said.

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