Payments company Shift4 agreed earlier this month to acquire financial services firm Finaro, but the planned purchase will draw more than the usual U.S. regulatory review, given the "thorny" issue of a Russian oligarch’s involvement with Finaro.
During a Tuesday session of Bank of America’s Electronic Payments Symposium, a senior analyst for the bank, Jason Kupferberg, asked Shift4 CEO Jared Isaacman and President Taylor Lauber about a Russian oligarch's ownership stake in Finaro and potential concerns in light of U.S. sanctions recently imposed against Russia after its invasion of Ukraine.
"This one very minority shareholder-slash-lender is completely isolated from the organization," Isaacman said in response during the Tuesday webcast. "We’re completely indemnified against it," he said, noting funds will go into a blocked account. "We’re not going to have an oligarch in our shareholder base when this deal closes six to nine months from now." He called the situation "a non-event."
Lauber said during the webcast that the Russian involvement in Finaro's ownership was "admittedly thorny in the current times." He's also the chief strategy officer of Allentown, Pennsylvania-based Shift4.
Finaro was formerly known as Credorax, and rebranded in December 2021. According to a July 2019 article from the Israeli news website CTech, the Russian oligarch Viktor Vekselberg had a 15.4% ownership stake in Credorax worth $69 million through his IVCP investment fund.
More acquisitions on the way
Shift4 announced earlier this month it’s acquiring Tel Aviv-based Finaro for $525 million, with the potential for a higher price tag if certain unspecified goals are met. The Finaro acquisition is aimed at expanding Shift4’s bid for global commerce by moving into European and other markets.
During the webcast, Isaacman said the situation is probably part of why Shift4 was able to scoop up the European e-commerce asset. The IPO market effectively closed Finaro out in the fourth quarter of 2021 and Finaro came with this "lender challenge" so it afforded Shift4 the opportunity to "reattack" with this deal, Isaacman said.
The timing is also right for Shift4 because Finaro is expected to support Shift4's role in a new partnership signed last November with SpaceX's Starlink in which Shift4 is acting as the payments processor to Starlink's satellite internet service.
Isaacman, who founded Shift4 in 1999 at age 16, has said the integrated payments company carved out a niche for itself as a processor serving the hospitality market and stadiums. Following the acquisitions of Finaro and cryptocurrency donations firm The Giving Block, Shift4 has plans for more acquisitions this year.
Lauber said Finaro "widens the aperture for us from an M&A perspective really significantly, as you think about the fragmented landscape of payments assets in Europe."
In his free time, Isaacman commanded all-civilian space mission Inspiration 4, Elon Musk’s first SpaceX venture, last September and plans to return to space this fall.
Seeking an OFAC license
Shift4 executives previously eyed Finaro early last year, but the fact that an individual sanctioned by the U.S. had lent the business money "was one of a list of things that we didn’t feel entirely comfortable with," Lauber said.
That discomfort led Shift4 to walk away from the potential purchase at that time, after spending about $1 million in due diligence, Lauber said in an interview following the symposium. Lauber wouldn’t comment on the name of the individual or the ownership stake because Shift4 doesn’t yet own Finaro.
Lauber stressed that Shift4’s initial walk-away early in 2021 wasn’t exclusively tied to this entanglement. "There were a bunch of factors that we had to get more comfortable with, not the least of which was operating a bank in Europe," Lauber said.
When Shift4 returned to the idea of the purchase in the fourth quarter of 2021, Lauber said Shift4 executives became comfortable due to the fact that a license granted by the U.S. Office of Foreign Assets Control would be a condition to close.
That means, to be able to close the sale, Finaro needs permission from the U.S. government, which Shift4 is seeking as the buyer, Lauber said. "It’s effectively permission to acquire assets despite his status," and Finaro has gotten those permissions before as it explored other sales, he added.
A spokesperson for the U.S. Treasury Department declined to comment on specific scenarios, but said a license is an authorization from OFAC to engage in a transaction that otherwise would be prohibited. OFAC is part of the Treasury Department.
The U.S. typically gives permission by allowing the sale to occur, but requiring the funds go into an account in the name of the U.S. government, which the sanctioned individual is not allowed to access, Lauber said. He wouldn’t comment on the amount that is likely to go into a blocked account.
The situation likely caused anyone else looking at acquiring Finaro some concern, Lauber said. It definitely took a small army of lawyers thinking through the potential for it," he said during the webcast.
When Shift4 revisited acquiring the company, Finaro’s growth had surpassed initial expectations, Isaacman and Lauber noted. Finaro also had gotten U.S. Public Company Accounting Oversight Board audits, which increased Shift4’s comfort with the financial institution.
'Highly unlikely' to affect transaction
Whether this entanglement could jeopardize Shift4’s purchase is something executives considered initially, Lauber said in the interview, but they now believe "it’s highly unlikely" the transaction will be affected.
"We unequivocally will never give money to this person, so to the extent something very odd happens and the U.S. says, 'No, we don’t grant this,' then we wouldn't own the business, but I think [that’s] highly unlikely in the scenarios we worked through with all of our legal teams around the world," Lauber said.
Lauber said they had a high degree of confidence in the license being granted before they entered into the Finaro transaction, because "that’s pretty easy to get perspective on from U.S. attorneys."
Lauber said he couldn’t specify when Shift4 expects a decision on the OFAC license, although he said it’s a much shorter timeframe than the regulatory timeframe in which a handful of European bank regulators, including the Malta Financial Services Authority, would consider the transaction. He also said he didn't know how many European regulators are required to review the deal.
Vekselberg, a Russian tycoon with ties to the Kremlin, has donated more than $100,000 to American charities, museums and universities, The Washington Post reported. He was sanctioned in 2018 "for operating in the energy sector of the Russian Federation economy." Some organizations told the Post they refused any future contributions from Vekselberg or Renova Group after the sanctions were issued that year.