Warburg Pincus Investment Fund, which controls the credit card company Max (formerly Leumi Card), is trying to postpone the date when it will have to “call the money” of its investors for the investment in Max. At the end of February, Warburg Pincus is due to pay the last payment to Bank Leumi and the Azrieli Group for the acquisition of Max, which was made two years ago.
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This is a payment of NIS 1.1 billion, half of which is supposed to come from a loan taken from an institutional consortium, and half of the money that Warburg Pincus is supposed to bring from its investors. Calcalist has learned that Warburg Pincus is currently in talks with Bank Hapoalim, which will provide it with a loan of NIS 600 million, so that it can pay the amount to Leumi.
This is how Warburg Pincus will postpone the date when it will call money from its investors. Yaron Bloch, Max’s chairman who also serves as the fund’s representative in Israel, is leading the talks. Talks with Bank Hapoalim are progressing, but there is no certainty that such a loan will be given, and Borburg Pincus is considering additional financing options, even with foreign entities. For questions concerning business customers. “
Improve the return on investment potential
The financing structure of the deal to buy Max is quite complicated, but the bottom line is that if the financing is received, the result is that two years after the takeover of Max, Warburg Pincus actually brought only NIS 170 million “from home” to finance the deal; The rest of the amount you will bring will probably only be in a few years.
The Warburg Pincus move is designed to improve the return potential from investing in Max. Return on investment funds is measured in IRR, which reflects the average annual return on investment, so the time element is critical in determining return. This means that as the length of time the money is actually taken from the fund’s investors to the exit from the investment – the IRR improves. A loan from Bank Hapoalim will postpone for several years the stage at which the fund will have to “call for money” from its investors.
Making financial moves to improve returns is important to Lorburg Pincus in its investment in Max. The company was acquired nearly two billion shekels two years ago (in addition, Max distributed half a billion shekels to its previous owners before the purchase). Although the company has made several moves since the separation from Bank Leumi, one of them is entering the world of insurance. In addition, Warburg Pincus established a sister company to Max in the field of payment technologies, which acquired the companies Caspit and Credit Guard, which are active in the field of payments, for a total of NIS 150 million. Max’s goal is to develop fintech activities for businesses and financial entities.
However, there was still no improvement in the financial results, and the company recorded some erosion in its market share. Moreover, the corona crisis hit the company: the volume of credit card use decreased as a result of the crisis, and the company’s growth engine (as of the entire credit card industry) – consumer credit – was hit. The company’s plans and goals have gone awry and this may affect the exit that Warburg Pincus will make with the investment. Therefore, postponing the withdrawal of a major part of the investment will financially improve the return.
The fund should bring in half a billion shekels next month
When it acquired control of Max, Warburg Pincus entered as partners in Clal Insurance (10%), Menora Mivtachim (10%) and Allied (5%). For the purpose of controlling Max, a dedicated company was established, in which Warburg Pincus holds 75% and its partnerships 25%. The designated company took out a NIS 975 million loan from an institutional consortium led by Harel Insurance Company to finance the acquisition. The loan constitutes 50% of the purchase, and the rest is flowed by the shareholders approxEquity.
As part of the transaction with Bank Leumi and its partner in Max, the Azrieli Group, it was determined that the payment for Max will be made in three installments. It was agreed that each pulse would flow in half from the loan and half from the capital brought in by the shareholders. The first pulse, of NIS 517 million, was at the time the transaction was completed two years ago, half from the loan and half from the minority shareholders (Clal Insurance, Menora Mivtachim and Allied), as summed up. The second pulse, a year later, was NIS 342 million, and this time Warburg Pincus brought in half of the capital from investors’ money, ie about NIS 170 million. The last and central beat is expected to be at the end of next month and stands at NIS 1.1 billion, and here too Warburg Pincus is responsible for bringing half of the amount, NIS 550 million.
In other words, while its partnerships have already poured in the full equity they have committed to investing – close to NIS 250 million, Warburg Pincus, the controlling owner, has so far brought in NIS 170 million “from home”, and will bring the rest in just a few years. Along with the financial logic that results from the move, the question arises as to whether this is not over-leveraging, especially when it comes to controlling a financial company. Capital market sources point out that the move is acceptable and legitimate in the investment fund market.
The loan contacts are not from the company that controls Max, but from Warburg Pincus itself. This means that Max’s shares will not be pledged in exchange for the loan, but Warburg Pincus will provide guarantees for insurance companies from abroad; even in an extreme scenario where Max runs into difficulties – this should not affect the repayment of Warburg Pincus’ loan. In addition, as far as is known, the Bank of Israel is aware of the process that is taking shape, and enables it.
Warburg Pincus is an American investment fund established 55 years ago. Over the years, it has invested more than $ 70 billion in hundreds of companies. The fund specializes in the world of finance in general, and payments in particular. The fund examined a number of financial acquisitions in Israel, and finally decided to take advantage of the opportunity created by the Strum reform, in which the big banks were obliged to sell the credit card companies they owned, and after lengthy negotiations with Bank Leumi acquired Leumi Card from it.
In response to the news, Bloch told Calcalist: “Similar to the world’s leading investment funds, the goal is to maximize the IRR (internal rate of return, AA) for investors. We are currently examining a number of financing options, in Israel and around the world, backed by strong collateral outside Israel. “A decision has not yet been made as to whether and how the deal will be made, but our preference is to choose an Israeli body.”
Right: Governor of the Bank of Israel Amir Yaron and Chairman Max Yaron Bloch, when Max changed hands