SoFi Technologies to Buy Technisys in $1.1B Stock Offer

No-moat rated SoFi Technologies SOFI announced a $1.1 billion all-stock acquisition of Technisys, a banking infrastructure company, to complement its existing banking technology platform, Galileo. The company intends to issue roughly 84 million new shares and Technisys will come with no material debt on its balance sheet. Technisys offers technology to support multiproduct banking services that SoFi intends to integrate with its existing Galileo offerings and implement in its own technology stack. As we adjust our model, we are reducing our fair value estimate for SoFi from $22 to $20. Roughly $1 dollar of the reduction is a result of the acquisition. The remainder is the result of adjustments to our near-term assumptions for SoFi's lending arm, particularly its mortgage lending. SoFi expects both Galileo and Technisys to benefit from cross-selling synergies as both businesses will have the ability to sell their respective services into the other's userbase. SoFi expects the deal add $500 million to $800 million in cumulative revenue from 2022 to 2025, which should be achievable as Technisys comes with around $70 million in 2021 revenue and stands to benefit from Galileo's large existing userbase. That said, banking technology deals tend to have a long sales cycle, and we expect much of the incremental revenue to come in the medium term, not immediately in 2022. We like the deal from a strategic standpoint, as it allows the firm to vertically integrate and expand on its banking technology business, which has been a major success story for the firm. That said, we do not like the idea of an all-stock acquisition using undervalued shares. SoFi, like other fintech names, has seen its shares fall sharply since late 2021, which reduces the appeal of using equity issuance to finance acquisitions. For the deal to be value accretive, SoFi will need to produce results from the purchase that are at or even above the high end of its guidance.

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