23rd Sep 2014 14:54
LONDON (Alliance News) - Earthport PLC, the AIM-listed cross-border payments company, hasn't yet decided how to use the GBP26.6 million before expenses it raised in a share placing last week, and is considering partnerships as well as going it alone in its bid to expand in Asia, Chief Executive Hank Uberoi told Alliance News.
Earthport, which acts as a central hub for low value cross-border payments between banks and other financial institutions, wants to tap into a variety of transactions, outbound and intra-Asia, according to Uberoi. But he is wary of the challenges of investing in a new region, meaning that Earthport is likely to form a partnership or build up a team with the necessary experience in order to expand in Asia.
"In order to address Asia in any meaningful way you've got to do it properly, and so we'd left that out for a later point in time. Now, with the capital resources available, we can definitely accelerate," Uberoi told Alliance News in an exclusive interview.
"It's very difficult to go into a highly regulated business like payments in Asia sitting in London, so you've got to have either a strong partner or a very, very strong team with significant domain expertise and local experience," Uberoi said.
He said the GBP26.6 million placing, which brought Oppenheimer Funds (New York) on board as a new investor with an 8.62% stake, was probably the fastest fundraising round he's ever done.
But Uberoi doesn't want to make any rash decisions in how or when Earthport spends its cash. In fact, he'd rather not spend any at all.
"We have the capital but I'm a cheapskate, you know," Uberoi chuckled. "As an investor, if you don't have to use cash, you don't want to use cash."
The CEO says it's likely Earthport will continue its tendency of structuring deals as earn-outs, citing his belief in betting on people who are willing to bet on themselves.
"If a company believes they can add a lot of value to us, let's do a partnership and let's demonstrate it. Then if we actually make money we'll benefit from it, rather than us having to say, 'Okay, we have the cash so we'll come in and invest.' That creates disincentives in the process, Uberoi said.
The CEO is also wary of making hasty decisions due to lofty expectations.
"We're in no rush to spend money because one thing we've learned in this business more than anything else is that everything takes longer than you ever think. So what you don't do is do something in anticipation of an expectation that things are going to be massively profitable or that volumes are going to be flowing really freely in three months. It could take two years," Uberoi said
"We're still going to run this company as an early stage company, very focused on making sure there's a return on invested capital as opposed to just trying things out and hoping that they work," the CEO added.
According to Uberoi, the proceeds of the equity raising aren't simply beneficial because they can go towards funding growth, but also because of the confidence they will inspire in the strength of Earthport's balance sheet.
"Even if we did nothing with half that money and just left it on our balance sheet, it would have a massive positive impact on our business, because there are clients that are very, very large, and they worry about doing a mission critical business with a small company," he said.
"If they look at our balance sheet now, there's zero debt, fast growth, really, really credible clients, some of the most sophisticated institutions in the world, and we've got USD50.0 million on the balance sheet. So, I think the chances of us kind of disappearing tomorrow are now almost negligible," Uberoi added.
The GBP26.6 million placing was the latest in a flurry of activity at the cross-border payments company. Since unveiling a deal last September to acquire currency broker Baydonhill for up to GBP7.8 million including earn-out, Earthport has agreed a series of contracts and deals with financial institutions including Bank of America Merrill Lynch, HSBC Holdings PLC, and State Street Corp. In August 2014, Earthport agreed to acquire a 45% stake in financial technology company and existing supplier ASPone Ltd in four years' time, but also has the option of buying the whole business depending on its performance.
Earthport shares were Monday quoted down 1.9% at 42.19 pence. The stock has risen about 15% so far in 2014.
By Samuel Agini; [email protected]; @samuelagini
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
Earthport