Railsbank Technology Ltd., a onetime darling of the UK payments scene that says it’s raised more than $100 million from investors, may be sold off through an insolvency process as it faces mounting financial and regulatory problems.
(Bloomberg) — Railsbank Technology Ltd., a onetime darling of the UK payments scene that says it’s raised more than $100 million from investors, may be sold off through an insolvency process as it faces mounting financial and regulatory problems.
Directors are close to selling Railsbank through a pre-pack administration, a form of bankruptcy that involves lining up a buyer beforehand, according to people familiar with the matter. The London-based company has appointed restructuring firm Alvarez & Marsal to advise on the process, the people said.
A sale hasn’t been finalized and may not occur, the people said, asking not to be named as the details aren’t public.
Railsbank, which rebranded as Railsr last year, was once feted by venture capitalists from Silicon Valley to Tel Aviv. Co-founder and Chief Executive Officer Nigel Verdon described the firm in 2021 as a “near-unicorn” worth almost $1 billion.
“We are hopeful that we will find a safe harbour for the business that will enable Railsr to continue — fully operational and recapitalized,” spokeswoman Emma Thompson said in an emailed statement. “We have made significant and positive progress and we remain in ongoing discussions with interested parties as part of our M&A process.”
It’s possible that a buyer could purchase “technology, people, assets” along with Railsbank’s regulated subsidiaries through administration, Thompson said.
The Financial Conduct Authority has been auditing Railsbank’s regulated UK subsidiary for several months, the people said. The Bank of Lithuania stopped its local unit there from taking on new customers last month, stating there’s “reason to suspect that the institution is grossly and systematically violating” anti-money-laundering and terrorist-financing laws.
The company announced a $46 million fundraising in October, included a $20 million debt facility from Mars Growth Capital, a Singapore-based fund. Verdon described the deal as “another milestone” and “a significant step on our route to profitability.” However, Mars only lent several million dollars and then demanded its money back amid fears over Railsbank’s stability, the people said. The money was repaid late last year, the people said.
“Mars resolved its issues with the company directly with its shareholders and board members,” said Ron Daniel, co-CEO of Mars, which is backed by Japanese lender Mitsubishi UFJ Financial Group and Israeli firm Liquidity Capital. “At the current time, Mars has no conflict with the company or any open issues.”
Railsbank had been in talks to sell itself to Flutterwave Inc., a Nigerian fintech firm, but these efforts were unsuccessful, Sky News reported earlier this week.
A pre-pack administration allows a business with unsustainable finances to be sold as a going concern, rather than a standard administration where a company looks for a buyer after its collapse. According to Begbies Traynor, an insolvency consulting firm, the process can preserve the value of assets and save jobs.
Railsbank’s regulated UK and Lithuanian subsidiaries, which use the Payrnet brand, are electronic-money institutions, or EMIs, that are licensed to process payments. The fast-growing sector has attracted concern because of shoddy money-laundering controls.
Anthos Capital LP, a venture-capital firm based in Menlo Park, CA, is among Railsbank’s biggest investors. Other backers include Ventura Capital Ltd. and Tel Aviv-based Moneta Venture Capital.
–With assistance from Jenny Surane.
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