Buy Now, Pay Less

Asset managers are turning toward wealth management ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

July 12, 2022

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TOGETHER WITH

Good Morning.

The Euro has fallen to parity with the US Dollar for the first time in two decades. The likelihood of a recession in the euro area has driven its currency down, while Fed rate hikes are strengthening the greenback.

The result is an ideal time for American tourists to take a free-spending holiday in Italy, all they have to do to get there is endure a Roman gladiator-style gauntlet of flight delays and cancellations, lost baggage, and sidewinding security lines. Buon viaggio.

Morning Brief

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Klarna's valuation plummets in latest funding round.

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Asset managers are pivoting to wealth management to get in on the rich's riches.

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Dufry and Autogrill agree to a major merger.

Fintech

Europe's Most Valuable Startup Was Worth $46 Billion Last Year; It's Down 85%

A year after earning a $46 billion price tag, Swedish payments firm Klarna announced Monday that it raised $800 million at a valuation of $6.7 billion. That's a dramatic 85% drop for the pioneering buy now, pay later (BNPL) firm.

CEO Sebastian Siemiatkowski said Klarna maintains a "strong position." Others might say it's experiencing the end result of sky-high valuation now, down round later.

Valuation, Meet Inflation

BNPL lending grew rapidly during the pandemic as more people shopped from home, but companies that specialize in the service have been hammered amid the broader stock market selloff. Klarna, for one, was quick to point out that rivals are also down 80% to 90% from peak valuation. For example, publicly-traded Affirm has lost over 80% of its value this year.

There's also considerable crowding. A raft of BNPL players has popped up, from Germany's Billie and Mondu to Sweden's Treyd to the UK's Hokodo and Playter. Apple and Block, which bought BNPL firm Afterpay, have also entered the arena. Klarna's bottom line, meanwhile, could use a tweak some time closer to now than later:

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Klarna's losses swelled to $748 million last year, compared to $150 million in 2020, as the company underwrote aggressive expansion. In May, the company laid off 10% of staff, blaming inflation and the war in Ukraine for deteriorating economic sentiment.

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Siemiatkowski said Klarna plans to "return to profitability" after taking losses to expand (the company had 147 million active consumers in 2021, up 70% year-on-year). "During the steepest drop in global stock markets in over fifty years, investors recognized our strong position and continued progress in revolutionizing the retail banking industry," he added, in a statement.

The New World: "An entire generation of entrepreneurs and tech investors built their entire perspectives on valuation during the second half of a 13-year amazing bull market run," Bill Gurley, a general partner at venture capital firm Benchmark and one of Silicon Valley's most respected dealmakers, tweeted earlier this year. "Previous 'all-time' highs are completely irrelevant. It's not 'cheap' because it is down 70%. Forget those prices happened."

Did the Check Clear? According to Bloomberg, participants in an $800 million funding round by Indian online education provider Byju, including Sumeru Ventures, have held back on transferring $250 million due to "macroeconomic reasons." Maybe they can offer them a BNPL option.

Investing

Asset Managers are Piling Into Wealth Management as the Rich Get Richer

"Follow the money" is a pretty good rule of thumb for every fictional noir detective, but it works just as well in the world of financial services.

A new report from Bain & Company suggests asset managers and brokerages are increasingly adhering to that mantra, moving into wealth management as the Richie Riches of the world keep getting Richie Richer.

Rich Way the Wind Blows

The collection of asset managers staking out positions in wealth management lines up like a hand of tarot cards that forecast a lucrative future. Last month, one of America's largest asset managers, Charles Schwab, rechristened its private client unit the Schwab Wealth Advisory to promote its wealth management offering. The program's average customer has $2 million invested.

Earlier this year, the Royal Bank of Canada unveiled plans to buy Brewin Dolphin, Britain's largest wealth manager, for £1.6 billion. Last year, JPMorgan bought online wealth manager Nutmeg for $1 billion. The long-term outlook for handling the wealth of the wealthy, Bain researchers say, makes their motivation clear:

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Wealth management is expected to grow 2% faster than asset management every year to 2030, bolstered by successful individuals from the retail investing boom and a wave of inheritance recipients.

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The total wealth management industry, which helps affluent individuals with investment management and financial planning, will grow 67% from $137 trillion under management last year to nearly $230 trillion in 2030, according to Bain forecasts. Asset management, a comparatively saturated business that also caters to institutions, will grow less than 40% from $109 trillion to $152 trillion, according to the forecasts.

"If you have a wealth management capability you have a much more valuable business," John Waldron, Goldman Sachs chief operating officer, told the Financial Times.

Not All Investors Are Created Equal: Unfortunately, Bain found that a major driver for the growth in wealth management is rising global inequality and the concentration of wealth. The investable assets of wealthy people will double in nearly every part of the world by 2030, the firm estimates. Unless you're one of the lucky few, it's best to hang on to those Groupons.

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Retail

Duty-Free Giant Dufry Agrees to Acquire Autogrill

(A highway Autogrill location; Photo by Depone)

With the travel industry making a strong rebound this year, one tourism-adjacent mega-merger is cleared for takeoff.

On Monday, Switzerland-based duty-free retailer Dufry announced plans to acquire Autogrill, the Italian food-service company synonymous with rest stops dotting highways between Naples, Milan, and beyond. Unfortunately for Autogrill, the deal will presumably be executed in some taxable jurisdiction or another.

Now Serving Planes, Trains, and Automobiles

The takeover will take two legs to complete. First, Dufry will acquire the 50.3% stake of Autogrill controlled by the billionaire Benetton family, its leading shareholder. Afterward, Dufry will make a tender offer for the rest of Autogrill in a deal that values the company at either €2 billion or €2.2 billion, depending if shareholders opt for Dufry stock or cash. The Benetton's will ultimately end up with about a 25% stake in the combined business.

Together, the companies aim to become the go-to shop stop for on-the-move travelers:

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The new company will combine Dufry's 1,700 airport locations in over 60 countries with Autogrill's 3,500 roadside, train station, and airport outlets in over 30 countries. The new-look Dufry, now primarily Euro-centric, plans to expand its presence in the US, Asia, Latin America, Africa, and the Middle East.

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The tie-up will presumably lower operational costs where the two companies already have significant overlap — primarily in Europe and North America — and could help the new conglomerate negotiate favorable rents, purchasing prices, and logistical costs, according to one Bloomberg Intelligence industry analyst.

Family Fortune: It's the second major deal this year for the Benetton family. In June, through their Edizione holding company, the family teamed up with Blackstone to take the highway operator business Atlantia SpA private, upping their stake from around 30% to 65% in a bid that valued the company at around €54 billion. Suffice to say, the Benettons have plenty of cause for a celebratory family road trip this summer.

Extra Upside

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A major gas pipeline from Russia to Europe shut down for repairs. Will it start up again? That question has people very worried.

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Former Secretary of State Condoleeza Rice has joined the Denver Broncos' ownership group.

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