JPMorgan’s Latest Fintech Fight Highlights the Pain of Sellers’ Remorse

(Bloomberg Opinion) — The venture capital bubble of 2020-2022 has left many investors with buyers’ remorse. But overconfidence also hurt some sellers whose deals turned out much worse than expected. This appears to be the case for the owner of a Greek payments company called Viva Wallet and JPMorgan Chase & Co.

Viva Wallet’s backers sold just under half of their company to JPMorgan for 800 million euros ($856 million), valuing it at 1.66 billion euros in 2022. The deal gave also in the bank options to buy the rest of the company, which the sellers thought guaranteed them an exit valuation of at least 5 billion euros. It was a nice salary suited to the times – but then the fintechs collapsed and a fight started brewing.

The two men ended up suing each other in London in February, and a judgment handed down last week allowed each side to claim some sort of victory. What’s interesting about this deal is the power the sellers gave JPMorgan in their initial deal without apparently realizing it. But their David versus Goliath battle was worth it, even if that heady release price probably remains out of reach.

The case also reminds big banks how difficult it can be to choose partners in the digital arms race. JPMorgan itself is still suffering from its $175 million deal for Frank, a financial planning startup that the bank says has since fraudulently inflated its customer base.

With Viva, the fight quickly became fierce. Majority shareholders, led by Viva Wallet founder Haris Karonis, accused JPMorgan of deliberately blocking its U.S. growth plans to drive down Viva’s value so the bank could buy it back cheaply. In turn, JPMorgan accused the sellers of frustrating attempts to reach agreement on a valuation during its first option period late last year and of blocking the appointment of directors of the bank, between other things.

Relations deteriorated between Karonis and JPMorgan’s outgoing payments chief, Takis Georgakopoulos, who led the investment. Such was the personal animosity that Karonis publicly celebrated Georgakopoulos’ departure: “I hope that the recent leadership changes at JP Morgan Payments will provide an opportunity to restart a constructive dialogue,” Karonis wrote on the website of Viva after last week’s judgment.

JPMorgan was attracted to Viva for its technology, which merchants can use to accept payments on any device, as well as its roster of small and medium-sized business clients across Europe, among which JPMorgan has a limited presence . Viva fits with the American bank’s ambition to expand outside the United States through its low-cost, digital-only global Chase.com brand.

Prior to this investment, Viva was considering expanding into the US – and these prospects were part of how Karonis hoped to reach the €5 billion valuation. But there was a problem: regulations that limited Viva’s activities in the United States as long as it was a subsidiary of JPMorgan International Finance Ltd., the entity that made the investment. This technicality exploded when independent experts were commissioned to evaluate Viva in December last year, the first opportunity for JPMorgan to buy back the remaining shares. Viva wanted US expansion plans to be included in the projections that underpinned its future value; This is not the case for JPMorgan.

The most galling aspect for Viva supporters was that the regulatory restriction only applied when it was under the JPMorgan International Finance entity. Any other owners, including other parts of JPMorgan, would not face the same restrictions.

Viva’s big victory in the London trials — the shareholders’ agreement was “expressly governed by English law and contains an exclusive jurisdiction clause in favor of the English court,” according to the judgment — was the decision that independent valuers were to ignore this restriction and be allowed to consider possible American expansion. But that doesn’t mean any wild growth fantasy can be used; assumptions must be reasonable and approved by JPMorgan.

All of this is important because of how JPMorgan options work. There are four periods, spaced six months apart, during which Viva is valued and JPMorgan can exercise its right to buy the company. In the first three cases, Viva’s backers can refuse to sell if the valuation is less than 5 billion euros, but in the fourth time, they have no choice: JPMorgan can buy the company if he wants it, regardless of what appraisers think it’s worth. So, for the final assessment in summer 2025, all the power still lies with the American bank.

There were other elements to the fight, but that’s the most important aspect. For Viva backers, their victory should boost the valuation at the option’s final date, but that doesn’t guarantee they’ll get anywhere near their target wealth. For both parties, there is still a long way to go; JPMorgan wants Viva to start developing its technology again and stop spending so much energy fighting the bank.

The question is whether there will really be water under the bridge. If the relationship cannot be repaired in the next 12 months, JPMorgan will not want to consummate it. The bank will be left with a stake in a company that might be worth less than the €800 million it paid, and Viva will be left with a disinterested and useless partner who won’t sell unless another backer in deep pockets does not appear.

JPMorgan and Viva each present the court ruling as a victory; but for both, there is still potentially much to lose.

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Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a journalist at the Wall Street Journal and the Financial Times.

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