MERCER CAPITAL
Valuation and Corporate Finance
Services for the FinTech Industry
BUSINESS VALUATION &
FINANCIAL ADVISORY SERVICES
WWW.MERCERCAPITAL.COM
Valuation and Corporate Finance Services for the
FinTech Industry
Mercer Capital provides Financial Technology companies with valuation, financial advisory, and consulting services.
Services Provided
•
Valuation of financial technology companies
•
Financial advisory/valuations for acquisitions and divestitures
•
Valuations for purchase accounting and impairment testing
•
Fairness and solvency opinions
•
Litigation support for economic damages and valuation and
shareholder disputes
•
Consulting and board presentations for corporate and
strategic planning
•
Unit economics analysis, studies, and consulting
FinTech Niche Experience
•
Payments
•
Digital / Specialty Lending
•
WealthTech
•
Digital / Online Banking
•
InsurTech
•
BankTech – including RegTech
Creating Strategic Value
Through Financial
Technology
FinTech Professionals
Check out our quarterly newsletter
Value Focus: FinTech Industry
Jay D. Wilson, Jr., CFA, ASA, CBA
wilsonj@mercercapital.com
Jeff K. Davis, CFA
jeffdavis@mercercapital.com
This book illustrates the benefits of
FinTech to banks, both large and
small, so that they can gain a
better understanding of FinTech
and how it can create value for
their shareholders and enhance
the health and profitability of their
institutions.
Mary Jane McCaghren
mccaghrenm@mercercapital.com
Scan the QR code to view previous
issues or subscribe
Daniel P. McLeod
mcleodd@mercercapital.com
Scan the QR code to purchase
Mercer Capital // FinTech Industry Services // www.mercercapital.com
1
Traditionally, There Are Two Types of Experts
Appropriate training and
professional designations
Regularly follows the
industry
Understanding of valuation
standards and concepts
Understands industry
concepts and terminology
Writes/speaks about
industry trends
Transaction experience
Industry
Regularly provides advisory
services
Sees the market as typical
buyers and sellers of
interests in FinTech
companies
Valuation
Sees the market as
hypothetical buyers and
sellers
Regularly values minority
interests
Advises on buy-sell
agreements
Defends work in litigated
matters
Handles recurring valuation
work for other clients
Mercer Capital // FinTech Industry Services // www.mercercapital.com
2
You Need Both
We Are Industry Specialists
We Are Valuation Specialists
We provide valuations for the
purpose of M&A, corporate
planning, employee benefit
plans, litigation and tax
compliance
We are a valuation firm that
is organized according to
industry specialization
About half of our work is with
financial companies
We value FinTech
companies for a variety of
purposes, including M&A,
equity compensation,
dispute resolution, portfolio
valuations, and other
financial statement reporting
Industry
We also have experience
valuing FinTech companies
across the corporate
lifecycle (from early-stage to
mature), both in the U.S. and
abroad
Mercer Capital // FinTech Industry Services // www.mercercapital.com
Valuation
We also provide transaction
advisory services, including
buy-side and sell-side
representation, fairness and
solvency opinions
Since our founding in 1982,
we have provided expert
valuation opinions to over
15,000 clients throughout the
U.S. and internationally
We are active in providing
thought leadership to the
valuation profession
3
Valuation Approaches
Asset-Based
Approach
Income
Approach
Market
Approach
Not typically applicable
because FinTechs are not
usually asset intensive
businesses
Discounted cash flow analysis
to develop a range of value
based upon a subject
company’s projections
Pricing metrics based
upon public companies,
M&A transactions (public
and private), and capital
raises by comparable
companies
Also considers the probability
of different exit scenarios
(IPO, sale to strategic or
financial buyer)
Mercer Capital // FinTech Industry Services // www.mercercapital.com
4
Income Approach: DCF
Projected
Cash Flow
Project likely revenue mix
• Mix across platform
WACC
Cost of equity
Indicated Value
Indicated value
• Expressed on a total capital basis
• Mix across geographic base (U.S., Latin
America, Europe/Asia)
• Equity discount rate (considered in light
of comparable public/early-stage
companies)
• Consider activity metrics and potential
monetization of users
• Non-systemic (company specific) risk
considered
• Evaluated against available market
pricing metrics for reasonableness
• Consider capacity/ceiling on revenue
from product mix, capacity, market
potential
• Often higher for early-stage, higher
growth companies
• Also consider certain exit scenarios
for the company such as IPO, sale
to strategic or financial acquirer,
and downside scenarios
Project expense base
• Non-labor cost trends
• Staffing/software development/CapEx to
achieve business plan
• Evaluated in light of industry norms and
trends
• Potential for operating leverage as
business matures
Cost of debt/funding
• Debt level and cost of debt (considered
in light of comparable public/early-stage
companies); Financing model utilizes
funds from external funders
• Before consideration of capital
structure implications
Capital structure
• Assume a mix of debt and equity
(considered in light of comparable
public/early-stage companies)
• Credit costs and underwriting strength
Mercer Capital // FinTech Industry Services // www.mercercapital.com
5
Market Approach Considerations
Ongoing/Projected
Performance
Project likely revenue mix
• Mix across platform
• Mix across geographic base (U.S., Latin
America, Europe/Asia)
• Consider activity metrics and potential
monetization of users
• Consider capacity/ceiling on revenue
from product mix, capacity, market
potential
Project expense base / margins
• Non-labor cost trends
• Staffing/software development/CapEx to
achieve business plan
• Evaluated in light of industry norms and
trends
• Potential for operating leverage as
business matures
Market
Pricing
Publicly traded FinTech
companies / specialty lenders
• Evaluated for comparability and available
pricing multiples
• Revenue, EBITDA, and net income most
meaningful
• Multiples potentially adjusted for size and
non-systemic risk factors
Indicated Value
Indicated value
• Expressed on a total capital basis
• Before consideration of capital
structure implications
• Evaluated against discounted cash
flow analysis for reasonableness
(consideration of business plan and
cost of capital relative to market)
Transactions / Venture
financing data
• Data is thin and idiosyncratic
• Deals occur for specific reasons which
may be irrelevant
• Trends in deal pricing offer bands of
reasonableness
Mercer Capital // FinTech Industry Services // www.mercercapital.com
6
Reconciling Indicated Values
It would be unusual for the indicated values from
the various income and market methods to align
perfectly.
Value indications from the market approach can be reasonably
volatile, since the market for FinTech companies is leveraged to
the performance of the market in general. Because valuation
for fair market value purposes is more of a descriptive exercise
than a prescriptive one, this is a perspective we consider.
In our experience, though, investors in private
companies think longer term. The more enduring
indications of value from income approaches,
such as DCF models, are often more
representative of the actual behavior of buyers
and sellers of interests in FinTech companies,
particularly early-stage companies.
Nonetheless, using multiple valuation
approaches serves to generate tests of
reasonableness against which the different
indications can be evaluated.
Note: we usually do not consider the asset
approach to be relevant to the valuation of
FinTechs. However, the balance sheet can be
important in situations where there are excess or
non-operating assets or contingent liabilities that
need to be considered apart from the value of
the firm’s ongoing operations.
Mercer Capital // FinTech Industry Services // www.mercercapital.com
Market
Approach
Public co. multiples
M&A Transactions
Capital Raises
Asset-Based
Approach
Not applicable
Present
Value
Income
Approach
DCF
7
The typical valuation process takes ~four weeks
BUT can be accelerated to accommodate client needs
Initial research
based on
information
provided from
client
Initial call and
scope of work
(about two
weeks)
Provide
engagement
letter and
information
request list to
client
Management
interview / due
diligence visit
by phone (after
initial research
and review of
information)
Analysis and
report
preparation
Discussion
with you and
subsequent
production of
final report
(about two to
three weeks)
Draft provided
for client
review
(immediately)
Mercer Capital // FinTech Industry Services // www.mercercapital.com
8
Mercer Capital’s Advantage
Experience
The Unexpected
We regularly handle similar engagements and
have relevant FinTech, and financial services
(bank, insurance, asset management)
experience.
We are available (and capable) for special
projects as needed.
• Of the ~500 valuation projects Mercer Capital
performs annually, approximately 25% are recurring
and approximately half (50%) are with financial
services companies
• Advisory and consultation regarding capital / M&A
transactions
• Consulting on special situations
• Litigation and expert testimony
• Independent transaction related opinions
• Mercer Capital follows professional appraisal
standards of preparation and documentation
• Purposes include employee ownership, M&A,
fairness opinions, capital raising, profit sharing
plans, estate and gift tax planning, litigation,
compliance matters, and corporate/strategic
planning
Mercer Capital // FinTech Industry Services // www.mercercapital.com
9
Recent FinTech Project Experience
Experience valuing FinTech companies across the corporate lifecycle from early stage to high growth to mature
companies
Includes experience valuing high growth Unicorn FinTech companies with complex capital structures
Involved in multiple projects with FinTech companies headquartered or having significant operations outside the
U.S.
Worked with FinTech companies headquartered or having significant operations in Asia and the UAE
Provided valuation and advisory services to a digital FinTech lender for corporate and strategic planning purposes
Provided valuation, due diligence, and advisory services to a U.S.-based insurance company in an acquisition of a
technology company
Provided valuation, due diligence, and advisory services to a bank headquartered outside of the U.S. as it
considered a minority investment in an early-stage FinTech company headquartered in the U.S.
Provided valuation services to an early-stage FinTech company headquartered outside of the U.S. for
strategic/capital planning purposes
Mercer Capital // FinTech Industry Services // www.mercercapital.com
10
Recent FinTech Project Experience (cont’d.)
Provided valuation services to a venture-backed FinTech company headquartered in Asia for corporate and
strategic planning purposes
Provided valuation services to a Private Equity/Venture Capital firm related to their investment in an early-stage
FinTech company
Provided loan portfolio valuation and due diligence services to a bank considering an acquisition of a digital lender
Provided valuation services of minority interests in a FinTech company for equity compensation purposes
Provided valuation services to a credit union considering exit options for a prior FinTech investment
Provided valuation services to acquirers (banks and insurers) of FinTech companies for financial statement
reporting purposes (valuations of intangible assets for purchase price allocations after closing) in various
engagements
Mercer Capital // FinTech Industry Services // www.mercercapital.com
11
Typical Scope and Projected Fees
We prepare a PowerPoint presentation and detailed Excel worksheets to substantiate our indication of value for
the subject FinTech company. Our valuation analysis is based upon a variety of factors, including:
• The nature of the business and the history of the enterprise from its inception
• A due diligence interview with management via telephone or onsite if circumstances allow
• The economic outlook in general and the outlook for the Company’s industry in particular
• An examination of the Company’s geographic and competitive markets
• A detailed analysis of the financial condition of the business and its capital structure
• Current earning power and projected future earnings/cash flow
• Indications of value derived from actual transactions in the Company’s shares, including prior funding rounds
• “Comp” multiples based upon relevant public companies, capital raises by comparable public and private
companies, and M&A transactions for comparable private and public companies
• Other factors unique to this valuation that are considered essential in the derivation of value
Professional fees vary depending upon the scope and complexity of the engagement, turnaround time, and the like
A formal detailed proposal of services and information request list is sent separately
Mercer Capital // FinTech Industry Services // www.mercercapital.com
12
Financial Technology Group
Jay D. Wilson, Jr., CFA, ASA, CBA
wilsonj@mercercapital.com
469.778.5860
Mary Jane McCaghren
mccaghrenm@mercercapital.com
214.206.3796
Mercer Capital // FinTech Industry Services // www.mercercapital.com
Jeff K. Davis, CFA
jeffdavis@mercercapital.com
615.345.0350
Daniel P. McLeod
mcleodd@mercercapital.com
901.322.9716
13