How to acquire a licensed entity for sale
There are multiple reasons why an investor or a group may decide to acquire a licensed entity authorised to offer payment services, such as an Electronic Money Institution (EMI), or investment services, such as an online trading CFD brokerage, or crypto-asset services, such as a crypto exchange. Most of the reasons are strategic, yet the acquisition of a licensed entity is mainly done to satisfy the need for growth in a certain vertical or region.
Acquisitions are common in business, yet unless it is a gigantic deal, we do not hear about them often. Nonetheless, most company acquisition deals are completed by small or medium-sized enterprises (SMEs) and a segment of these involve acquiring readymade licensed entities. Our Mergers & Acquisition team at SALVUS has been consistently catering to this particular niche, both for sellers and buyers.
In the regulated entities market such as
- the investment services sector for investment firms, such as Cyprus Investment Firms (CIF), and investment funds,
- the payment services sector for payment and Electronic Money Institutions (EMI), and
- the crypto-asset services sector for crypto-exchanges, such as Crypto-Asset Services Providers (CASP).
The acquisition also involves a change of ownership application to the regulator following the signing of a successful shares purchase agreement (SPA). This step in the acquisition of a licensed entity for sale can be a challenging procedure as many variables including the profile of the acquirer and other regulatory, compliance, and legal factors can be critical.
Within this article, our Mergers & Acquisitions team at SALVUS aim to provide information on:
1. What are mergers and acquisitions?
2. What investors and groups need to consider before acquiring or selling a licensed entity?
3. What are the different types of licensed entities for sale?
4. How the M&A team at SALVUS can help you acquire or sell a licensed entity
1. What are Mergers & Acquisitions (M&A)?
Mergers, acquisitions, and takeovers are often terms interchangeably used in business however, there are clear distinctions.
In general, the term merger refers to a mutual agreement between two or more firms that combine to enhance financial, human, and technological resources. During a merger, the parties involved create a new legal entity and are most commonly undertaken to increase market share, scale operations, and diversify their product or service offering.
Acquisitions take place when one firm purchases the majority of shares from another, usually via an amicable transaction. In contrast, although a takeover is still the process of one firm purchasing the majority of shares from another, it is usually conducted under harsher circumstances. During a takeover, the acquiring entity will face resistance from the target firm as it is often reluctant to be taken over.
In the following section, our M&A team at SALVUS discusses what investors and groups must consider before acquiring or selling a licensed entity.
2. What investors and groups need to consider before acquiring or selling a licensed entity
When an investor or a group is interested in acquiring or selling a licensed entity, there are many facets that should be thoroughly considered. Diligent consideration is needed to ensure the license that is being acquired or sold, can meet the specific requirements and visions of the investor. In this section, our M&A team outlines 4 major areas to look out for.
Timeframe
A main factor to consider is the timeframe. The timeframe of acquiring or selling a licensed entity may be of such significance to the investor or group that it may be the sole reason the transaction is pursued, or not.
When acquiring a licensed entity for sale, whether a CIF, CASP, EMI or an investment fund, the timeframe of the change in ownership depends on a few factors:
- how prepared the key stakeholders are in providing the relevant information during the negotiation procedure,
- how ready the regulator of the jurisdiction is to review the application and to provide feedback depending on workload and staffing,
- the type and quality of the documentation needed to confirm the economic profile of the Ultimate Beneficiary Owner (UBO) such as proof and source of funds, and their knowledge and repute.
From our experience in successfully facilitating various M&A deals all over the world and in dealing with different regulators, the timeframe can vary from a few months to more than a year. However, each project has its own nuances that can influence the timeframe of the acquisition or sale of a licensed entity.
Organisational structure
Another key component to be considered during the acquisition or sale of a licensed entity is the type of organisational structure and arrangements that are already in place.
An investor attempting to sell a licensed entity that does not have key-positioned professionals in place such as executive directors or an Anti-Money Laundering Compliance Officer (AMLCO), may have less leverage to successfully secure an M&A deal.
Furthermore, having a pre-established organisational structure helps to define the various activities in the day-to-day operations of the licensed entity for sale. The operational side of the business can play a significant role as having already established processes, procedures, and protocols mitigate the chances of downtime or bottlenecks during the change of ownership.
Having said that, it is not uncommon to have acquirers seeking for readymade licenses that are not necessarily fully set up to operate.
Finances
The financial side is a crucial aspect of the acquisition or sale of a licensed entity. When inquiring about a licensed entity for sale, the general consensus is that the seller is likely to ask for a higher premium.
This can vary across jurisdictions, types of authorisations the licensed entity for sale holds, demand, and other elements. The rule of thumb is a higher premium will be demanded, the more complete its operational setup is and the more authorisations it carries. The logic is that it will save the investor or acquiring group the resources from setting up the operations or adding authorisations to the licensed entity for sale – assuming the investment, payment, and crypto-asset services are authorised are a match to the investors’ needs.
A full operational setup a licensed entity for sale is likely to have:
- One or more corporate bank account(s)
- One or more client funds’ bank account(s) depending on license type and business model
- Payment service providers (PSP) accounts setup
- Fully functional office space
- Key professionals in place
Brand name & reputation
In business, the brand name is arguably one of the most influential reasons that customers choose one brand over another. Think about some of the largest organisations and brands in the world and why people choose to buy from them. Tech companies such as Apple and Google are two examples of organisations that have successfully built a unique and strong brand identity. Having a strong brand identity builds trust and loyalty that translates into customers choosing to continuously purchase products and services from such firms.
Nowadays, start-ups such as forex companies and crypto-exchanges can find it difficult to build a strong brand identity and a reputation that can challenge bigger organisations. Hence, acquiring a licensed entity for sale can be a great option for investors and groups that want to eliminate the process of starting from ground zero.
Two benefits of acquiring a readymade licensed entity are the amount of time and financial resources saved from having to build up a brand from scratch. This includes adopting an established customer base where product-market fit already exists.
On the other hand, acquiring a licensed entity for sale demands a premium to be paid. FinTech companies such as EMI and crypto-exchanges operating under CySEC through the CASP regime can find it challenging to commit to the premium and may very well choose to go through the path of submitting a fresh application from start.
3. What are the different types of licensed entities for sale?
In the regulated services industries such as payment services, investment services, and crypto-asset services, there are many types of licensed entities for sale across various jurisdictions worldwide. The current or envisioned business model and the strategy of an acquirer will dictate the exact type of a readymade licensed entity to acquire and the jurisdiction that could be an appropriate fit.
Some of the most in-demand regulated entities for sale, licensed, and authorised to offer such services, include:
- CySEC regulated CFD brokerages, operating as online trading and forex CIF,
- Straight-Through Processing (STP) or
- Market Makers
- Bank of Lithuania regulated Payment & electronic money institutions (EMI),
- CySEC, ADGM and VARA regulated crypto-exchanges, CASP & Virtual Asset Service Providers (VASP).
The abovementioned are a few examples of licensed entities that may be for sale. We list the entities we are selling or have sold and their many business models with their unique characteristics that are readymade and available for acquisition on our dedicated Entities for Sale page.
From the regulatory perspective, some types of entities are better equipped to operate out of a specific jurisdiction. For example, penetrating the wealthy UAE region, investment firms regulated by the Dubai Financial Services Authority (DFSA) are targeted as they enjoy the growth the region has experienced in the last couple of decades within the Dubai International Financial Centre (DIFC) that has managed to transform their jurisdiction by attracting some of the largest investment companies.
Similarly, Cyprus and CySEC have also worked hard to instil a modern regulatory framework that favours the establishment of FinTech and investment firms on the European island and regulated entities in this jurisdiction are high in demand. Cyprus is known for being one of the most cost-efficient EU member states and benefits from a vast range of financial and legal policies including the EU passporting scheme. Furthermore, the Cyprus Investment Promotion Agency (CIPA) has been working closely with CySEC to further enhance the financial and business incentives FinTech and investment firms can use to their advantage. In that way, Cyprus is a popular jurisdiction of choice for establishing online trading and forex companies & crypto exchanges.
4. How the M&A team at SALVUS can help you acquire or sell a licensed entity
The M&A team at SALVUS has vast experience in facilitating successful M&A deals in jurisdictions around the world. This is partly due to the team’s established network of high-net-worth individuals (HNWI), UBOs, and our relationships with regulators.
Thus, we have experience in connecting sellers with qualified buyers in jurisdictions such as Dubai, Abu Dhabi, Lithuania, Estonia, South Africa, Luxemburg, Malta, and Ireland to name a few.
Through our licensed entities for sale service, are able to successfully facilitate the acquisition or sale of investment firms, funds, EMI, and crypto-exchanges. To do so, we implement a project management approach.
During the initial phases with a client, we outline how we intend to project manage the acquisition or sale of the licensed entity. This helps manage expectations and demonstrates what the entire procedure will look like from start to finish. Once engaged, our M&A team at SALVUS will focus on the:
- identification of the target entity or suited buyer,
- support in negotiations to avoid delays or setbacks,
- compliance, legal and financial due diligence,
- provision of all transaction agreements,
- provision of escrow accounts, and
- liaising for changes of shareholding with competent authorities, and the Registrar of Company.
The table below demonstrates the list of available licensed entities for sale:
Please contact us via email at info@salvusfunds.com or call us at +357 7000 7898 if you would like information about how we can help you acquire or sell a licensed entity based on your unique requirements and vision.
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The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.