The odds are low that Plaid will seek out another merger partner now that its $5.3 billion sale to Visa is off.
Instead, the fintech is more likely to go public via a traditional initial public offering, a special purpose acquisition vehicle, or a direct listing, five fintech bankers and venture capitalists told Barron’s.
“Plaid is likely to IPO or get SPAC’d,” one venture capitalist said.
“It’s SPAC city,” another banker added.
A Plaid spokeswoman declined to comment.
SPACs have emerged as the busiest sector of the IPO market. There were 248 so-called blank-check companies that went public in 2020—more than half the number of all IPOs that year—raising $82.3 billion, Dealogic said. The $82.3 billion is nearly 50% of the $167.4 billion raised by the entire IPO market in 2020.
Blank-check companies have been aggressive with fintechs. Earlier this month, Social Capital Hedosophia (ticker: IPOE), the latest blank-check company from venture capitalist Chamath Palihapitiya, agreed to merge with online personal finance company Social Finance, or SoFi, in an $8.6 billion deal. Foley Trasimene Acquisition Corp. II (BFT), the SPAC from William P. Foley II, is buying payments platform Paysafe for $9 billion in December. United Wholesale Mortgage, a leading mortgage lender, is merging with Gores Holdings IV (GHIV), the blank-check company from the Gores Group, in a $16.1 billion transaction. United Wholesale is scheduled to trade on the New York Stock Exchange later this month.
Founded in 2013, Plaid’s platform lets users connect their bank accounts to finance apps and transfer money. For example, Plaid’s technology lets Venmo’s customers pay their friends and family. Plaid works with other well-known fintechs, including investment platform Robinhood; Transferwise, which offers international money transfers; and Coinbase, a digital currency exchange. It employs 600 people.
The San Francisco fintech has raised $310 million in funding. That includes a $2.8 million seed round from 2013 and a $12.5 million round in 2014, Crunchbase said. Both Visa (V) and Mastercard (MA) invested in Plaid’s $250 million Series C round in 2018.
“It will be hard for Plaid investors to wait too long for an exit given how close they came,” a second banker said, referring to the near sale to Visa.
The Plaid spokeswoman said its investors “are committed to supporting Plaid’s path as an independent company and our long term growth trajectory.”
Visa agreed in January 2020 to buy Plaid for $5.3 billion. The deal, which didn’t include a breakup fee, would have been Visa’s biggest ever. The companies late Tuesday agreed to terminate the $5.3 billion transaction after the Justice Department sued to block the deal. The DOJ alleged the acquisition would allow Visa to eliminate a competitive threat to its online debit business before Plaid had a chance to succeed. “Now that Visa has abandoned its anticompetitive merger, Plaid and other future fintech innovators are free to develop potential alternatives to Visa’s online debit services,” said Assistant Attorney General Makan Delrahim in a statement.
Visa, in a separate statement, said it was confident it would’ve won the litigation. But the pace of a multiyear regulatory review “wasn’t compatible with the fast-moving realities of a startup—and delaying close another year or more is not in the best interest of our customers, the financial system, or consumers themselves,” said Zach Perret, Plaid’s co-founder and CEO, in a blog post.
Plaid’s customer base has grown by 60% in the past year as more people have gone digital, a spokeswoman said. The Covid-19 pandemic has caused many consumers to no longer want to use cash or physically enter bank branches. Plaid is focused on “building out [its] products and continuing to accommodate the generous growth potential that exists for Plaid as digital finance becomes more pervasive,” the spokeswoman said.
The DOJ lawsuit against Visa is the latest sign that regulators are concerned about the power held by Silicon Valley giants like Facebook (FB), Microsoft (MSFT), and Alphabet (GOOGL). Facebook in particular has been widely criticized for allowing disinformation to spread on its site, which is said to have contributed to the attack on the U.S. Capitol last week.
“I’m not surprised they scuttled it,” said Matthew Epstein, managing partner and founder of Newbold Partners, a boutique fintech-focused investment bank, of the Visa-Plaid merger. Regulators are concerned that large tech companies are buying up nascent new providers early in their life cycle, Epstein said.
“The consensus in Washington is that there has been insufficient enforcement of antitrust rules and that this is causing problems,” Epstein said. “The change in administrations is not going to change [the scrutiny]. Visa may have decided that this is a situation where they can’t fight City Hall.”