A banking professional could potentially be in possession of a transaction fee surpassing $5 billion from a merger and acquisition deal.
Sizzling Takes on the Controversial Tycoon of Wall Street
Steve McLaughlin, America's wealthiest, most debated, and polarizing investment banker, has once again found himself in the limelight due to a recent securities filing.
McLaughlin, the visionary behind Financial Technology Partners (or "FT Partners"), established the firm more than two decades ago as a niche player. Driven by his gutsy bet on fintech in its infancy, McLaughlin now reaps the benefits as the sector's estimated worth seethes in the trillions.
In a casual encounter back in his San Francisco days, the author recalled a job inquiry with McLaughlin for FT Partners. Little did he know then that this conversation would pave the way for a partnership that would revolutionize the fintech industry.
The recent SEC filing reveals that FT Partners will rake in a tidy $39 million as advisors for the $2.2 billion sale of AvidXchange, a payments software company that went public on Nasdaq in 2021, to private equity group TPG.
However, that's only half the story. According to AvidXchange's 10-K for 2021, a revised contract signed with FT Partners back in 2010 would replace the existing one just before the listing. The new contract entitled FT Partners to 1% of any IPO proceeds and a 1.75% fee if the company was ever sold. With $60 million earned from the $1 billion raised when AvidXchange was private, plus the $6.6 million added during the IPO, the $39 million from the TPG sale rounded off a hefty $80 million payday.
Things get even more intriguing when we look at the 2021 engagement letter. AvidXchange also agreed to shell out an additional $50 million to FT Partners in exchange for terminating the old deal and signing the new one. Floored by this lump sum, the bank promptly invested in AvidXchange stock, only to sell it for $41 million once the TPG deal was finalized.
The AvidXchange arrangement isn't without controversy. A source familiar with the deal said that the $50 million payment was intended to buy out the company from the previous FT Partners engagement letter's eye-watering 5% M&A deal fee. FT Partners declined to comment on the matter.
AvidXchange's founder and CEO, Michael Praeger, echoed high praise for McLaughlin, confessing to the author's surprise that McLaughlin was an instrumental part of the company's astounding journey, even during its lean phases, when top-tier investment banks were reluctant to get involved.
The Wall Street Journal gives us a glimpse into FT Partners' playbook, suggesting the firm in exchange for supplying valuable connections and advice, and in some instances, capital, extracts high fee rates and ironclad contracts that could span decades. The 2021 AvidXchange engagement letter offers a perfect example, extending until the end of 2059 or upon the company's sale.
However, it’s crucial to examine the challenges of having a significant shareholder also represent the company as an investment banker. According to AvidXchange's annual report, the Transaction Committee had reservations regarding FT Partners' relationships and potential issues, the involvement of Steve McLaughlin, and the employment of McLaughlin's family members. Consequently, they opted to seek the advice of Barclays for the remainder of the sale process.
Another client, Circle, the stablecoin pioneer, recently made headlines with an $1.2 billion stock sale and a $45 billion market cap. But there's a twist: a blockbuster lawsuit between FT Partners and Circle could potentially interrupt their harmony. The filing alleges that Circle attempts to nullify the engagement letter to shirk millions in deal fees. Circle's IPO prospectus also points to contractual language that could leave an FT Partners fee of $84 million, depending on the lawsuit's outcome.
The information reported last year on a similar fee dispute lawsuit involving FT Partners and AlphaSense, and Circle's IPO prospectus also allude to such issues. Yet, despite these controversies, Steve McLaughlin's influence remains unwaveringly strong in the financial technology landscape.
- Steve McLaughlin's visionary approach to fintech investment, as demonstrated by his establishment and guidance of Financial Technology Partners (FT Partners), has significantly impacted the business and finance sectors, particularly the multi-trillion dollar technology markets.
- The AvidXchange deal revealed that FT Partners, as advisors, stood to earn $39 million from the sale to private equity group TPG, a portion of which was coupled with additional earnings from earlier investments and a revised contract signed in 2010 that entitled them to a portion of the IPO proceeds and sale fees.
- The extended engagement with AvidXchange, which runs until the end of 2059 or upon the company's sale, is one example of FT Partners' unusual business models, where high fee rates and long-term contracts are common, securing their influence in the technology-driven markets of the contemporary business world.
