Equistone Acquires Small World Financial Services from FPE and MMC Ventures

Equistone Partners Europe, one of Europe’s leading mid-market private equity investors, announced that it had signed an agreement to acquire a majority stake in Small World Financial Services, a leading international, UK-headquartered, multi-channel, cross-border payment service provider. Small World’s investors, including FPE Capital and MMC Ventures, will sell their shareholdings in the Company as part of the transaction, with management reinvesting for a minority stake. The financial terms of the deal are undisclosed and, as Small World is regulated in multiple countries, completion of the transaction remains subject to regulatory approvals.

Small World’s technology-driven platform allows customers to make cross-border payments via its physical network of over 6,000 third-party send-side agents and 80 branches. Small World’s high-growth digital channels, through both app and web, provide choice and convenience to its three million active customers. Since being founded by CEO Nick Day in 2005, Small World has assembled an extensive proprietary international payments infrastructure, providing customers with access to cash collection through a worldwide banking network, fast direct-to-account payments, and loading of mobile wallets. The Company places strong emphasis upon regulatory compliance, relationships with partner banks, and innovative technology to provide a fast, reliable, and good value service to its customers. With millions of customers worldwide, Small World currently employs c.680 people across 16 countries and generates revenues in excess of £110m.

Dominic Geer, Andrew Backen, and Richard Briault from Equistone led the investment. Equistone has been advised on the acquisition by Quayle Munro (M&A), Travers Smith (legal), EY (financial due diligence), PwC (tax), Huntswood (regulation), UX Fabric (IT due diligence) and Marsh (insurance).

Small World was advised on the acquisition by Canaccord Genuity (financial) and Charles Russell Speechlys (legal).

Interview with Matthew Drage, Head of Regulatory Development at Huntswood

What are three main steps you follow when undergoing due diligence in such a deal?

At Huntswood, from a due diligence perspective, we specialise in financial crime, payments, information security and regulatory conduct risk. Our approach to due diligence typically takes three main steps, which are as follows:

1. Regulatory red flag review: focuses on key documents, including the firm’s regulatory business plan and the information memorandum.
2. Desk-based documentation review: goes into further detail and looks at the vendor’s key policies and procedures, business standards and minutes from key committee and audit meetings, all hosted within a virtual data room environment.
3. On-site discussions with management and file testing: the focus here is on the experience of senior management and looking in further detail at the application of the control environment in practice. Our work also involves looking at a variety of actual customer journeys and case files.

Did anything arise which took your team by surprise?

The vendor’s technology solution allowed for full front to back-end functionality and reporting throughout the vendor group. It interacted with several internal and external applications to facilitate the management of regulatory risks and, following case testing, was viewed as significantly reducing the risk associated with various business lines. In our view, the technology solution adopted was market leading and the fact that this was a bespoke solution was particularly impressive.

All in all, why do you think this was a good deal for the parties?

Demand for cross-border payments is increasing and firms that offer alternatives to traditional forms of banking remittance are expected to grow in stature. By combining strong regulatory compliance with a convenient alternative payment system, and with the experience which both teams bring to the table, Small World Financial Services is likely to benefit from further organic and potentially acquisitive growth.