Payoneer puts itself on a faster track to go public

Payoneer is the latest payments company to merge with a special purpose acquisition company, making public listings easier while attracting broader and potentially riskier investors.

The startup has reached a deal to merge with FTAC Olympus Acquisition Corp, a special-purpose acquisition company (SPAC) in a deal worth about $3.3 billion. The SPAC deal, which is expected to close in the first half, is designed to make Payoneer's path to a listing easier. SPACs, or "blank check companies" do not have a business model other than raising funds through an IPO, then taking another company public by merging with that company.

For fintechs, the structure supports shorter listing timelines since some of the paperwork has already been done by the SPAC. But the general fintech IPO craze is bringing in fractional and smaller investors, who often use online platforms like Robinhood to trade, notes Richard Crone, a payments consultant.

"Retail investors are attracted to fintech because of its buzz, and the SPAC is funding the exit for the [fintech firms'] original founders," Crone said.

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The benefits of the SPAC approach must be balanced against the risk of attracting inexperienced investors.

"It's an onerous process to do an IPO filing. Every part of the business is scrutinized," Crone said. "Fintech is red hot. There's more money going in than there are quality investments."

Blank check companies raised more than $70 billion in 2020, according to Reuters. More than a dozen blank check firms were created in Asia alone late in 2020, searching for technology unicorns to take public, according to CNBC. And in January Deep Lake Capital raised $180 million to fuel its fintech-focused blank check company. Deep Lake Capital's CEO is Mark Levelle, the former senior vice president of commerce cloud at Adobe; its president and director is Gary Marino, the former executive vice president and chief commercial officer at PayPal. Deep Lake is targeting financial and e-commerce software companies

"[SPAC] gets around market noise so it's a bit faster and opaque, which is probably a good thing in this environment," said Steve Murphy, director of the Commercial & Enterprise Payments Advisory Group at Mercator Advisory Group.

FTAC filed an IPO on Feb. 1 to raise $750 million with a goal of taking a fintech company public. Betsy Cohen, who founded Jefferson Bank and Bancorp Inc., created FTAC along with venture capitalist Ryan Gilbert. Gilbert is also a general partner at Propel Venture Partners, which has funded Coinbase and Prosper, among other firms.

For Payoneer, the funding boost should help support and expand the company's payments orchestration platform (POP), which acts as a hub for merchants to build rails for consumer and B2B payments, tax remittances, risk and general merchant services. The 16-year-old Payoneer powers a B2B network and processed about $44 billion in transactions over more than 7,000 corridors in 2020. Its clients include Airbnb, Amazon, Google and Walmart.

Payoneer will also receive a $300 million investment as part of the SPAC deal, with investors including Wellington Management, Fidelity Management & Research Company and Franklin Templeton.

"The SPAC route gives us certainty of financing and an incredible platform for future growth," said Scott Galit, Payoneer's CEO, in an email. "The deal provides us with the advantages associated with becoming a public company in a relatively short time frame, all while merging with an experienced team at FTAC Olympus who have great experience in Fintech and have been a valuable partner through this process.“

The new source of capital will also provide financial flexibility and an opportunity to increase investment in B2B and working capital, Galit said.

Other payment companies have recently used SPACs to expedite public offerings. Paya, an Atlanta-based processor, merged with FinTech Acquisition III for a $1.3 billion listing in 2020. Billtrust, a Lawrenceville, N.J.-based payment company, merged with South Mountain Merger Corp in a $1.3 billion deal to go public in 2020.

Like all payment processors, Payoneer has diversified to address the growth of digital payments and the need to automate B2B payments. The pandemic has accelerated consolidation among payment processors that are being squeezed by merchants seeking to downsize their technology vendor relationships, lower transaction flows due to the economic downturn and the growth of rival technology companies like Square and Stripe.

It has diversified over the past four years, adding tools for gig economy companies and in 2019 branched into consumer payments by acquiring Optile. More recently, Payoneer collaborated with the Wayfair marketplace to launch an onboarding program to connect online marketplaces with merchants prescreened for fraud and compliance.