Having flagged South East Asia as a target for their global expansion, fintech company Novatti Group (ASX: NOV) is set to boost its payment services in the region with the attractive acquisition of ATX and its digital payment network in Malaysia with plans to grow it further.
Founded in 2011, ATX was recognised as a Top 50 rising startup in South East Asia where they provide a variety of B2B and B2C payment services. The network includes more than 31,000 touch points where residents can pay bills, purchase cards, recharge them, or send money.
This builds on the services Novatti has already established in Australia, the US, Europe, and elsewhere in Asia.
“The acquisition of ATX will not only provide Novatti with a strong business in Malaysia, it also provides a platform to continue our expansion in South East Asia, where we see increasing growth in digital payments,” said Novatti Managing Director, Peter Cook.
“This growing demand has already supported a number of Novatti’s other recent activities in the region, including the expansion of our partnership with Ripple into Thailand, after launching in the Philippines earlier this year.”
The Malaysian market presents a lucrative opportunity for fintech operators courtesy of the 32 million residents, of which global research firm Bain & Company estimates 55% of the adult population is still underbanked and unbanked.
Core to Novatti’s expansion strategy in South East Asia has been to drive the transition from traditionally cash economies towards digital payments, a societal trend that has been accelerated by the pandemic.
As part of their acquisition of ATX, Novatti has flagged its intent to roll out new digital payment services that will leverage their existing technology stack.
Many of these services have been largely inaccessible to segments of Malaysia’s population. But with the rise of smartphones and widespread internet access, Novatti has been rapidly growing its global network having already established mobile payment partnerships with Apple, Google and Samsung.
Through its vast network of retail partners and agents, ATX generated $3.0 million in normalised revenue and $0.6m EBITDA in FY21. Upfront consideration for ATX is $5.94m comprising $3.96m in cash and $1.98m in NOV shares at an Issue Price of $0.55 each which will be escrowed for two years.
Further cash payments of $2.475m will be deferred and be payable over the next two years which brings the Total purchase price to $8.4m while an additional $1.5m may be payable if revenue targets are met by ATX.
This represents a valuation multiple of 2.8X normalised annual revenue while having only a minimal impact on Novatti’s cash reserves. Additionally, the agreed Issue Price of scrip is 26% higher than Novatti’s last close price of $0.435 – making it a very attractive acquisition price.
Growth initiatives flagged by Novatti will be driven by ATX’s founding team which will remain in Malaysia under the guidance of ATX Founder and CEO, Sashie Kumar who has been known to Novatti since 2015 when the two companies first began working together.
“We are thrilled to be joining the Novatti team. Having worked together for several years, we know the strength of Novatti’s solutions and believe we can add value,” said Kumar.
“We are particularly excited by the prospect of working together to expand in Malaysia and South East Asia. We look forward to this exciting new chapter!”
The addition of ATX’s $3.0m revenue would have represented an additional 18% annual sales revenue for Novatti which themselves reported $16.5m in FY21.
This acquisition of ATX continues a very busy few months for Novatti which is gearing up for the launch of their new banking business in Australia pending regulatory approval while also recently launching Verv, an international bank account service, in Europe.
Alfred Chan is an Analyst at Emerald Financial, specialising in ASX-listed small cap companies.
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6 Comments
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