Saturday, January 16, 2021

Why Visa and Plaid canceled their $ 5.3 billion fintech deal

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One year later Visa announced its deal to buy fintech start-up Plaid, the companies backed out of the deal on Tuesday in the middle regulatory opposition that threatened to delay the merger for years.

Proposal $ 5.3 billion deal was one of the largest in the history of the fintech industry and preceded a wave of other mergers by financial companies in early 2020 before the pandemic.

The companies said they mutually agreed to terminate their deal after the Justice Department pursued to block the November agreement on antitrust concerns, saying Visa, the largest credit and debit payment network in the United States, aimed to acquire Plaid in order to ward off a “competitive threat.” Plaid’s software powers most of the major fintech applications, including Venmo, Robinhood, SoFi and others, by connecting them to customer bank account data. The litigation threatened to delay the transaction for at least two or three years, according to a person familiar with the proceedings, with a date for the first trial scheduled for late June this year.

The timing of the decision is likely due to a typical clause in merger agreements, which gives companies a year to close a deal before terms expire or need to be renewed. Canceling the deal now means neither company owes the other any fees for the breach, Visa executives said.

While the two companies felt they could have successfully fought the DOJ in court, protracted litigation made the merger path untenable, especially for a startup like Plaid, which was founded in 2013. At l In the future without Visa’s backing, Plaid will likely look to start a new round of venture capital in the coming months, according to a person familiar with the company.

DOJ’s antitrust division chief Makan Delrahim celebrated the deal’s termination, calling it a “victory for American consumers and small businesses” as the department moved to have his lawsuit dismissed.

Still, Visa and Plaid have said they will find other ways to work together before a merger because they don’t see themselves as competitors. “We just think the lawsuit is wrong based on the facts and the law,” Visa CEO Al Kelly said on a conference call after the announcement. Instead, Visa, which is an investor in Plaid, plans to partner with the company; Kelly suggested that Plaid, for example, distribute Visa’s services to its fintech customers.

“We see Plaid as another network,” Kelly added. “It just happens to be a network where the fuel is data, as we transfer funds.”

More to read absolutely financial cover of Fortune:

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