Urban FT Makes Bid For Troubled Online Bank Digiliti

What a difference a day makes. Trite, that saying, but tried — and in this case, true.

Just a day after beleaguered mobile money app firm Digiliti Money said it would not file its quarterly results on time, recently looked into the need to restate its financials, and just a little over a week after naming an interim CEO…

The firm caught a bid.

Specifically, Urban FT Group, a SaaS-based white label digital banking app company, launched the opening salvo of an acquisition on Tuesday. The firm offered an as-yet undisclosed cash sum for Digiliti, whose stock closed at $0.19 on Tuesday with a market cap of $2.2 million.

Urban FT said in a release on Wednesday that the deal would allow Digiliti to “continue to serve its customers and stave off potential bankruptcy proceedings.”

Funding would come through Morgan Stanley on behalf of Urban FT’s principal investor. Other terms of the deal would see some of Digiliti holders converting their common shares into Urban FT common shares.

In an interview with Karen Webster, Urban FT CEO Richard Steggall gave some insight into the rationale behind the proposed acquisition. First, though, the mechanics of the deal.

Although no purchase price has been announced, Steggall said his firm’s largest investor has agreed to advance the cash required to get the deal done, “as a supplemental investment” to existing facilities in place with Urban FT.

That’s consistent with how Urban FT’s recent acquisition of mobile banking platform iParse LLC was completed just last month, and is similar to the firm’s 2015 acquisition of financial services solution provider Wipit. The acquisition of iParse gave Urban FT access to its plug-in technology which works with bank APIs to bring mobile banking offerings onboard.

Steggall told Webster that in tapping this capital source for the proposed Digiliti deal, “We are fortunate that we can move in a matter of days and had access to more capital than [we] could ever require.”

So, with funding in place and the mechanics of a bid taking shape, Steggall recounted the steps needed to get the deal done. “Every transaction is different, but our history with iParse and Wipit demonstrated our ability to do challenging deals in short periods of time — all the while capturing the benefits for all parties involved.”

With the offer submitted Tuesday evening, Urban FT will work toward submitting a non-binding term sheet within 10 days. The would-be acquirer also will extend a secured line of credit to get Digiliti through to closing. The supplied capital will allow Digiliti to continue to make all payments as and when they become due. Next steps include a definitive and nonbinding agreement, with the subsequent shareholder and regulatory approvals in place before final closing.

Beyond the processes needed to get to closing, Webster and Steggall delved into the strategy underpinning of the bid itself.

In its most recent news update, Digiliti said that, among other things, its independent auditors had withdrawn reports for the most recent quarter, strategic options for 2016 were being considered and that bankruptcy might be an option, all belying what Steggall termed as failure to “be capital efficient.” Aside from the financial missteps, he noted, there are promising assets underpinning it all.

According to Steggall, “They have attained some good clients with their RDC [Remote Deposit Capture] Service, their Prepaid Program Management Services and their white label mobile applications. We are confident that, with our own offerings and using our platforms, we can deliver enhanced opportunities for their clients, expanded customer penetration and … reduce costs of revenues — thus having a material, positive impact on the gross margin.”

Steggall told Webster Urban FT would immediately consolidate the entities to leverage the savings from operational synergies, with plans to “go much deeper than that.” Part of the plan includes leveraging Urban FT’s platform assets to deliver “more compelling” services to existing customers, thus increasing revenues.

Concurrently, Steggall said the firm would work to move existing Digiliti services onto Urban FT’s own platforms and away from Digiliti’s third-party platform accounts. Steggall said doing so will significantly reduce cost of sales with returns that will accrue to Digiliti’s bonds and shareholders.