Seedrs abandons £140m Crowdcube merger after CMA block
Update 25/03/2021 12:24: Crowcube has since approached FinTech Futures to confirm both parties “have jointly agreed” to withdraw from the transaction following the CMA’s findings.
The UK’s two largest equity crowdfunding platforms, Crowdcube and Seedrs, have abandoned their £140 million merger just a day after the Competition and Markets Authority (CMA) concluded its opposition to the deal.
Jeff Lynn, Seedrs’ executive chairman and co-founder, announced the news via a blog post.
“Given the low likelihood that [the CMA] will change their mind at this point, we have concluded that it does not make sense to continue the battle,” says Lynn.
Seedrs has, as a result, “agreed a new funding round for the business” and promises to reveal details concerning the round “very shortly”.
The CMA said the deal would “reduce competition and innovation”. It concluded that both players hold a combined 90% market share of the equity crowdfunding space in the UK.
Need for capital
When both companies revealed the proposed deal back in October, neither were making a profit.
Published a day after the merger news, Seedrs’ 2019 results disclosed “material uncertainty related to going concern”. The firm had made a £4.6 million loss in 219 on a revenue of just £4.2 million.
“The group’s ability to continue as a going concern may be dependent on additional capital being raised that is not yet committed,” it said at the time, hinting to the capital it is now looking to raise.
Crowdcube, which made a loss of £2.47 million with a revenue of £7.7 million, has since told CNBC that it is making a profit.
A spokesperson also tells FinTech Futures: “Crowdcube recorded outstanding levels of growth in the last 12 months and remains in a very strong financial position following record revenue in 2020 and two consecutive quarters of profitability.”
Seedrs also claims the first quarter of 2021 has seen it deliver more than 100% year-on-year revenue growth compared to the same time last year.
Crowdcube is currently valued at around £84 million, while Seedrs’ value sits at £56 million.
Both platforms formed in the aftermath of the 2008 financial crisis. They aim to help start-ups raise funds without having to tap venture capital or angel investors off the bat.
Andy Moseby, corporate partner at law firm Kemp Little, said the merger would help Seedrs combat the 20% drop in platform activity it experienced in the first half of 2020.
The CMA felt a merger could “result in UK SMEs and investors losing out as a result of higher fees”, “less choice”, and “less innovation”.
Particularly due to the fact many start-ups rely on crowdfunding alone when they’re trying to get their products off the ground.
It stated: “Blocking the merger may be the only way of addressing these competition concerns.”
Kirstin Baker, chair of the CMA inquiry group, said: “The decision to block any deal is not taken lightly and is only made if there is a real risk of customers losing out.”
The regulator launched a consultation yesterday based on these provisional findings with a 14 April deadline.