New York-based global private equity firm Warburg Puincus agreed to acquire a 35% stake in Swiss-based banking fintech company Avaloq from its founders, management and employees for over $350 million, valuing Avaloq at more than $1 billion.
Avaloq founder and Chief Executive Officer Francisco Fernandez will retain a 28% stake and will also assume the role of Chairman. Management and employees will retain an additional 27% shareholding. Jürg Hunziker will serve as Deputy CEO and Group Chief Markets Officer (CMO). Swiss bank Raiffeisen, an existing investor in Avaloq, will retain the remaining 10% stake.
Founded in 1985, Avaloq is a technology-driven financial services provider for wealth management, universal and retail banks worldwide, which has largely completed a transformation from a pure software company to an integrated service provider. The deal allows the firm to rebalance its shareholding structure and bring in an experienced partner in Warburg Pincus to help facilitate the next phase of growth and value creation, with an investment horizon of 7 years.
Warburg Pincus is a leading investor in the financial services and fintech sectors, with over $10 billion invested in over 90 companies in these sectors, nearly 20 of which are banks. Warburg Pincus’s notable financial services and fintech investments include AllFunds Bank, Arch Capital, China Huarong Asset Management, FIS/Metavante, HDFC, Interactive Data Corporation, Mellon Bank, Network International, Elavon, Sterling Financial Corp, Santander Consumer USA, Wall Street Systems, Webster Bank and many others.
“With its focus on innovation, we believe that Avaloq is uniquely qualified to take advantage of growing demand for cutting edge software and outsourced services in the financial industry,” said Daniel Zilberman, a Managing Director and Head of Europe at Warburg Pincus. “We look forward to partnering with Francisco, Jürg and the rest of Avaloq’s talented team as the company enters a new and exciting stage in its international growth path.”
The market for Avaloq’s products and services is due to grow significantly based upon increasing demand for digital banking, outsourcing, Software as a Service (SaaS) solutions and the overall development of the banking digital ecosystem. Avaloq and Warburg Pincus share the belief that a focus on Avaloq’s customers and developing best in class technology will propel Avaloq to further strengthen its position as leading global services provider to the banking and wealth management industry. This transaction is the first step towards a potential public listing of Avaloq in the coming years.
“I am delighted to welcome Warburg Pincus as shareholders in Avaloq and look forward to partnering with them as we accelerate the growth of the business. Their global presence, in the US, Europe and years of experience in Asia, combined with their extensive experience in financial services and software, and large network in the broader banking and wealth management industry will be invaluable as we enter a new stage in the development of Avaloq and its geographic expansion. While Avaloq’s management, employees and current Board of Directors retain the majority by means of shares and governance, we will leverage Warburg Pincus’ expertise to continue our path for capital market readiness.”
The deal follows excellent financial results at Avaloq in 2016. The firm generated full year revenues of CHF 533 million1 in 2016, an increase of 10% on a reported basis from CHF 485 million in the previous year. EBITDA increased 41% to CHF 82 million from CHF 58 million in 2015. EBITDA margin improved year over year by 3.4 points to 15.4%. The company enjoyed strong cash flows with net cash provided by operating activities increasing by 100% to CHF 62 million and an 8% year over year increase in cash on hand to CHF 63 million.
Concurrent with the transaction, Avaloq is creating a European Advisory Board to support the company’s strategic initiatives and growth. The European Advisory Board will include Jacques Aigrain, former Chief Executive Officer of Swiss Re and Chairman of LCH.Clearnet, Stefano Boccadoro, the former General Manager of Cassa Lombarda Bank and Chief Executive Officer of Santander Italy, Stefan Krause, former Chief Financial Officer of Deutsche Bank and BMW and Javier Marin, former Chief Executive Officer of Banco Santander.
The deal is expected to close in the second quarter of 2017.