SoFi aims to build core banking solutions for community banks in Technisys deal

Following its planned acquisition of Technisys SA, SoFi Technologies Inc. expects to build a cloud-native core banking platform that enables regional and community banks to develop more digital products, executives say.

SoFi plans to acquire Buenos Aires-headquartered Technisys in a roughly $1.1 billion all-stock deal and to combine it with SoFi's payment processing subsidiary Galileo Processing Inc. to build new products on Technisys' core banking system, including secured and unsecured credit cards and lending-as-a-service, CEO Anthony Noto said in an investor call.

SoFi's shares fell 9.92% on Feb. 22, the day the transaction was announced.

The initiative is aimed at helping SoFi's bank and financial technology customers expand outside of deposit accounts and debit cards, Noto said.

"One of the things that we think that Technisys and Galileo together can do is to penetrate the established banks in the United States that are regional community banks and credit unions that do not have the technology, expertise and scale of technology talent," Noto said.

The acquisition comes as core banking vendors shift toward modern technology stacks that are cloud-native and easy for integration with third-party fintech applications.

Fiserv Inc. said Feb. 7 that it plans to acquire the remaining ownership of cloud-native banking solutions provider Finxact Inc. for roughly $650 million. Jack Henry & Associates Inc. executives said in a Feb. 9 earnings call that the company has been working for more than two years to develop a cloud-native open banking platform for regional and community banks.

Bank and fintech clients

For calendar year 2021, Technisys is on track to grow revenues by 24% to roughly $70 million, CFO Christopher Lapointe said during the call. The two parties reached the deal through one-on-one negotiations without a competitive process involving other bidders, Noto said.

The acquisition could bring SoFi a cumulative $500 million to $800 million in new revenue through year-end 2025, with roughly 60% coming from traditional financial institutions and the rest from fintech customers, Lapointe said.

Technisys' main customer base is equally weighed between established financial institutions and digital banks, Noto said. Its customers include Banco Macro SA in Argentina, Banco Original SA in Brazil, Rellevate Inc. and TAB Bank Holdings Inc. in the U.S. and ATB Financial Inc.'s digital banking app Brightside in Canada.

SoFi acquired Galileo in May 2020 for $1.2 billion in cash and stock. The CEO has said SoFi wants Galileo to play a role similar to that of Amazon Web Services, providing technology infrastructure for credit unions, community banks and regional banks.

Investor skepticism

In the acquisitions of Galileo and Technisys, SoFi appears to have paid $2.1 billion for an estimated $265 million of technology revenues in 2021, which represents a revenue multiple of less than 8x, Keefe Bruyette & Woods analysts Michael Perito and Timothy Switzer wrote in a Feb. 22 note.

The multiple appears reasonable, cumulatively, given that nCino Inc. and Marqeta Inc. respectively trade at 13x and 6.3x 2023 consensus revenues, they added. Still, they wrote, "the 15.7x acquisition multiple on Technisys does seem a little full."

SoFi shares face heavy short interest of 17.6%, up significantly from 11.7% at year-end 2021, with investor skepticism driven largely by high valuation multiples, the KBW analysts wrote. While SoFi trades at 5.0x 2023 sales, its digital lending and neobank peers trade at 1.0x to 2.0x 2023 sales on median, they noted.