Change Financial wins bid to acquire Australian and NZ subsidiaries from fallen Wirecard AG empire

The aftermath of the Wirecard scandal is finally generating some green shoots of reconciliation after banking-as-a-service (BaaS) fintech company Change Financial (ASX: CCA) announced the planned acquisition of two Wirecard business units in New Zealand and Australia.

The two companies, Wirecard NZ and Wirecard Australia, are subsidiaries of the German-based Wirecard AG – the payment processing company that was embroiled in an international financial scandal leading to the loss of €1.9 billion (A$3 billion) in June this year.

Wirecard specialises in providing payment management solutions and typically serves banks, financial institutions and fintechs as its customers.

The proposed acquisition intends to deliver “significant scale and growth” through the addition of 120 customers and a boosted market capability in over 35 countries.

Moreover, the deal will enable Change to further build up its payments business by adding a greater selection of currencies and five card networks to its operations. Other enhancements likely to appeal to customers include the addition of virtual cards and debit/credit card functionality.

Change was selected as the preferred bidder by the appointed Wirecard administrators to acquire the entirety of Wirecard NZ and Wirecard Australia.

The winning tender means that Change will acquire the two Wirecard companies for a total of $7.8 million.

According to Change, the acquisition represents a revenue multiple of 0.5x based on financial year 2020 performance in which Wirecard generated revenues of $15.4 million in Australia and New Zealand.

Annual recurring revenue for FY 2020 totalled $9.3 million.

To complete the deal, Change intends to raise $6.4 million via a placement to professional and sophisticated investors with an additional entitlement offer to existing shareholders expected to raise a further $4.9 million.

Change expects the placement to be settled by 17 September 2020, with the 67.4 million newly created shares to begin trading on the same day.

Acquisition strategy

The rationale behind the binding agreement is based on scale and territorial presence.

The deal nets Change over 120 new customers including the four big Australian banks, several major retailers, as well as Asian and South American banks. The acquisition price is close to Wirecard’s annual recurring revenue of US$6.7 million, meaning Change will pickup a viable business which it can directly fold into its own operations.

Change anticipates the acquisition will boost revenues and strengthen its balance sheet to prepare for an acceleration of its US market expansion.

At the current time, the fintech company only operates in the US but is planning to expand adoption of its platform by leveraging existing partnerships with Visa, AMEX, Diners, UnionPay and JCB to launch a second card network in the US.

Potentially the most important factor, as far as shareholders are concerned, is the immediate boost to customer and employee numbers. Acquiring the two Wirecard businesses will add over 100 new customers and is set to increase staff numbers from 15 to 75, spread across office locations in Auckland, Melbourne and Santo Domingo.

Also, the deal means Change can improve its global presence to over 35 countries.

Following the completion of the deal, Change plans to “embark on growth initiatives” including the upgrade of its existing platform to increase its addressable US market by 10x and adding debit/credit card processing features.

Looking forward, Change estimated it will onboard at least 10 new customers in the US over the next 12 months as part of a concerted sales and marketing push.