On Monday, Vancouver, BC-based MOGO (NASDAQ: MOGO) (TSX: MOGO)announced its agreement to acquire Montreal, QC securities dealer Fortification Capital for roughly $1,050,000 in cash and 75,000 shares of MOGO common stock. The deal highlights an exciting new M&A trend in fintech – wealthtech specifically – of synergistic value being achieved by the business combination of the newest financial technology platforms with some of the older elements of the financial services industry. In this particular case, MOGO’s consumer finance, card issuing, payments, credit monitoring, fraud management, and crypto trading platform application with the traditional broker-dealer platform of Fortification Capital.
By now, most of us are aware of the disruptive power of the online, commission-free, fractional trading movement brought to market by the likes of Robinhood and Public.com. So, the highly strategic MOGO acquisition of Fortification Capital for the purpose of capturing the ability to offer securities trading through its existing online application comes as no surprise. What is a bit surprising is the strategic pathway of MOGO given its size and the nature of its existing business.
At a market capitalization of roughly $605M, MOGO is very small for a publicly-traded entity. Size aside, MOGO has been very aggressive in its strategic development. The completion of its acquisition of Carta Solutions in January 2021 provided MOGO with a meaningful footprint in the arena of online payments by virtue of Carta’s physical and virtual issuing platform which processes payments transaction for some of the world’s leading fintechs, including TransferWise, Sodexo, and Payfare. MOGO also bolstered its crypto trading cred by converting 5% of its cash and investment capital into Ethereum earlier this month. For a small company, MOGO has been extremely aggressive in positioning itself as the next generation all-in-one consumer finance and wealth management platform.
What all of these transactions have in common is a new-plus-new (new technology) business combination paradigm. And that’s what makes the acquisition of Fortification Capital so interesting. Clearly a company like MOGO had to be evaluating the case for build versus buy in its consideration for providing its customers the ability to execute equity trades through its mobile application. That MOGO landed on buying is great news for traditional, small, independent broker-dealers who haven’t enjoyed the realization of value creation by virtue of a historically illiquid marketplace. It also has the non-inconsequential benefit of a substantial savings in time, as the broker-dealer registration process can often take up to a year or more to complete.
In contrast to MOGO’s strategy of acquiring a traditional broker-dealer to execute its customers’ trades, I think it’s worth noting the other direction they could have gone: build one. A really good example of this is Altruists recent $50M Series B raise led by Insight Partners, Series A investor Venrock, and Vanguard. Though not exactly an apples-to-apples comparison, as Altruist’s wealth management platform is designed for independent Registered Investment Advisors and not retail investors, Altruist’s recent funding round does highlight the two aforementioned drivers of acquiring instead of building: substantial savings in cost and time. It also validates a larger theme in wealthtech expansion via M&A or investment as there’s no shortage of interest in new fintechs looking to take on the behemoth online trading platforms and custodians like Charles Schwab and Fidelity Investments.
It’s also noteworthy that there’s a plethora of up-and-coming, MOGO-like companies out there that may also want to expand their services at some point, adding equity security trading execution and/or custodial services. Just to name a few, these other companies also started out like MOGO with consumer financing and credit monitoring capabilities: Tala, Nav.com, Nerdwallet and Credit sesame.
The takeaway here is that MOGO’s acquisition of Fortification Capital may not just be a one-off case of a new fintech opting to go the buy route for a traditional broker-dealer when contemplating the build versus buy decision. There’s likely more to come given what seems to be a steady stream of new fintechs and wealthtechs seeking to capitalize on the disruptive online, mobile trading movement. In the interim, if the current, new-buys-old business combination becomes an entrenched wealthtech M&A strategy, it will likely put in play a host of traditional broker-dealers for acquisition, leading to what could be considerable upside opportunities.
– Adam T. Hark, Managing Director, Wellesley Hills Financial, LLC