Ant Financial’s revised $1.2 billion bid for MoneyGram, a 36% increase on the price it offered in January, tells us several things about the company’s ambition.
One, it’s prepared to pay top dollar for a business it considers transformative. Two: that it believes it can navigate likely US objections to a Chinese takeover of a financial services company rich with US data.
Euromoney’s cover story for May will look in detail at the Chinese fintech – or, as they insist on saying internally, techfin – following a series of meetings at the company’s Hangzhou HQ.
One of the things that came out of those meetings is that MoneyGram is a wholly atypical acquisition for Ant.
International expansion is a clear priority of Ant Financial – in our cover story, a senior executive tells us the company wants two billion clients globally – but so far the affiliate company of e-commerce firm Alibaba has not done so through outright acquisition, which is what the MoneyGram bid involves.
Instead, the priority so far has been to buy a significant minority stake in a local business, and then apply Ant’s tech – principally its Alipay payment-and-lifestyle wallet approach – into the back-end of that business.
It takes this approach for two main reasons: the local business understands the local culture and the needs of customers, and it already has the licences and compliance procedures in place that Ant, in a new country, does not.
The clearest example of this approach is Paytm in India, in which Ant is thought to be a 40% shareholder – it won’t disclose the precise number – and which already has 215 million customers domestically, getting on for half the 450 million users the Alipay system has.
But one can also see the same approach in action with Kakao Pay in South Korea, with Mynt in the Philippines and in Ascend Money in Thailand.
“For us, compliance is the most important thing in each country,” says Jia Hang, senior director in the international business unit at Ant Financial, in our cover story. “That is why we need a partner. We don’t want to do it by ourselves.
“We only want a minority of the shares: we share the product and help the company grow quickly, and we get the benefit from our revenues.”
He adds: “We are heavily dependent on our local partner. Apart from compliance, they have the local experience: they know the culture, the language, what the market needs. What we can provide is operational experience, knowledge, product, technology. We are middle to end, but they are the front.”
All of this makes the MoneyGram bid particularly interesting, because here Ant is making an offer for the whole thing. And the increase in the bid shows how desperately Ant wants to win it.
The appeal of MoneyGram is that it brings a ready-made cross-border remittance business. It fills a gap: today, customers all over the world can use Alipay to pay for things online or in shops, but they cannot send money to friends or relatives abroad, or home from overseas.
For Ant to win the day, it must persuade the most insular US administration in decades
Also, Ant sees an opportunity to bring its little-guy ethos to this sector: businesses such as MoneyGram or Western Union are fine for reasonably large remittances, but unworkable for small amounts. Here, Ant sees a gap.
However, building such a business from scratch would be intensely difficult, particularly around compliance capability, with knowing your client such a key part of cross-border remittance. This is why Ant is so keen to buy.
Still, through president of international business Douglas Feagin, an ex-Goldman banker who knows his way around US financial services, Ant is trying hard to present itself as an in-the-background player even if it owns the whole business.
Feagin has been rattling off open letters and responses to articles, saying, among other things, that MoneyGram will “continue to be headquartered in Dallas and run by its current US-based management team after the deal closes”, that Ant will “continue to invest in MoneyGram’s systems and compliance programs” and that data collected by the business would be stored locally on “ironclad US-based servers”.
This all matters because tabling the highest bid is the easy part of the acquisition. Getting it over the line is going to involve a far more formidable foe than rival bidder, Kansas City-based Euronet: the Committee on Foreign Investment in the US (CFIUS), and all of the US interests that committee stands for.
This is not an easy time either to get money out of China for outbound acquisition, or for a Chinese company to acquire a US enterprise. There are investment banks making a lively business out of second-guessing the attitude of CFIUS to particular deals, and the outcome is not always straightforward to predict.
For Ant to win the day, it must persuade the most insular US administration in decades that the bid will not threaten US national security – particularly around data – and that it will create jobs.
Here, it might have one thing in its favour: Jack Ma, CEO of Alibaba.
President Donald Trump appears to like him, seeing in him an entrepreneurial zest that he himself feels he shares. Ma was one of the first visitors to Trump Tower after the US election and it is this relationship, man to man, entrepreneur to entrepreneur, that might carry the day.
CFIUS only makes recommendations on particular deals; the president is the one who can ultimately approve or veto it. And while Ma is not CEO of Ant Financial – that’s Eric Jing – he is very much the public face of the whole Alibaba/Ant nexus and, in this case, a useful public face to have.