Nuvei CEO Phil Fayer.Supplied
Nuvei Corp. NVEI-T listed publicly during a wave of 20 technology initial public offerings on the Toronto Stock Exchange in the 2020-21 COVID-19 tech bubble. The Montreal online payments company raised US$805-million in the largest technology IPO on the TSX – a record that fell months later.
Despite being large (revenues were US$345.5-million in its most recent quarter) and profitable, Nuvei has struggled as a public company, fending off short seller attacks and seeing its stock sag below its $26-a-share IPO price. In April, Nuvei said it had agreed to a takeover by U.S. private equity firm Advent International Corp. for US$34 a share, making it one of nine companies from that 2020-21 IPO cohort to leave the TSX amid a prolonged slump for technology stocks.
Chief executive and founder Phil Fayer and fellow multiple voting shareholders Novacap and Caisse de dépôt et placement du Québec are rolling over much of their holdings in the deal, which values Nuvei at US$6.3-billion. The Globe and Mail’s Sean Silcoff spoke with Mr. Fayer recently after shareholders approved the deal, which is expected to close by early 2025. The following interview has been condensed.
Why did Nuvei go public?
Every business needs to be opportunistic and evaluate their options that best suit them in the current macro environment. Nuvei accessed the public markets to have liquidity and currency for large-scale mergers and acquisitions. That was our number one motivator because unlike other companies, we are very profitable, we’re growing, we have strong cash flow. That also prompted the exit from the public markets because of the backdrop we’re in now.
What was your experience running a public company?
There’s a lot of learning because this was my first journey as a public company CEO. The worst part is the instability it provides to our employees and customers when we have volatility in the stock. When things are good, the stock is going up, it’s engaging, people are motivated. But when it has a significant movement, it has a deep impact on culture, morale and clients.
On the good side, it helped establish our brand and our capability, and that momentum and visibility was additive. On the downside, people worked their butts off and they have done so many amazing things over the last four years and the numbers come out and you see violent stock reactions and that’s a mood killer, retention killer, morale killer.
You attracted attention from a short seller in 2021. Tell me about that experience.
From a business perspective, it was somewhat irrelevant. We attracted the same short twice for a variety of reasons. They made all kinds of claims that, for them, is all about moving the stock.
There’s a tremendous amount of regulation about not pumping the stock up, but none about pumping it down. We’ve been vocal with the regulators that they must curtail this specifically because Canadian companies are targets. [Short sellers] have destroyed a lot of shareholder value and momentum for companies.
In our case, it was extremely distracting from an employee and customer perspective, even from some of the places that were regulated. And you’re stuck. On one end, you need to speak to all the shareholders, but on the other end, to litigate with [shorts] is incredibly disrupting. And you need to prove yourself innocent versus them having to prove you guilty. That’s why you see very little repercussions beyond our hope the regulators step in and put more structure around it.
We spent weeks speaking to all our top shareholders. We engaged with all stakeholders. We had one-on-ones with every customer. It was an enormous distraction. You end up doing damage control, managing your employee base, working with the board for them to make independent assessments on what is happening. Thankfully, in our case, we managed it well.
How did the privatization come about?
We received inbound interest from a group I know well. Advent is a top-five private equity firm with deep experience in payments. They bring a lot of value. We don’t rely on the public market for liquidity, so we were going through the motions of being public without any net advantage. We felt the market from an evaluation perspective was dislocated, but we weren’t in a rush to do anything different because we were just running and growing our business.
Advent’s approach triggered a process where we established a special committee. Because myself, Novacap and CDPQ had multiple voting shares, that allowed us to be more thoughtful about what the business could look like and who were the right partners for us to continue executing on our exciting journey. I’m thrilled to welcome Advent.
Did it come down to an assessment that it wasn’t worth it to be a public company, and that the stock price didn’t reflect your value or provide you with deal-making currency?
All of the above. Time, distraction, employee impact, customer impact, dislocation on valuation, cost. We struggle to do M&A at the multiples where we trade. And we were able to provide a wonderful return to our shareholders based on the current backdrop. I love everything we do. We’re in the right markets with the right total addressable market, the right licensing. I have an incredible leadership team. I think Nuvei is special and has invested so much in product and distribution and go-to-market.
Is it a loss for the public market? Maybe. But it will continue its journey. The public market evaluated us the way it thought was appropriate. We think we can do better as a private company.
Will Nuvei go public again?
We’re private-equity backed. That means they’re here to drive a return and there will be a liquidity event in the future. That could be multiple scenarios, from a recapitalization to a strategic acquisition or a public listing. It’s so far away it would be hard to comment.
I started the business 21 years ago and today we are knocking on the door of US$500-million of EBITDA [earnings before interest, taxes, depreciation and amortization]. We have the potential to triple that by putting our heads down and executing over the next 10 years. I’m focused on the next three to five years in the value creation plan. Thereafter, great businesses have real options, and we will execute on those options because our partners will look for liquidity. Depending on the backdrop, we’ll decide what’s appropriate.
I’m not averse to the public markets and neither should other entrepreneurs be. If it’s right for your business, we urge folks to consider it. For us it wasn’t because there wasn’t any gain.
What did you learn leading a public company that you would bring to bear if Nuvei listed again?
We would spend more time building the investor relations department, thinking about how we provide outlook and what we provide for disclosures. If the market expects you to grow at 20 per cent and you come in at 19 per cent there are repercussions, even though 19-per-cent growth is unbelievable. Conversely, if the market expects you to grow 18 per cent and you grow 19 per cent you get an extremely positive reaction.
As a business, you need to manage expectations, to speak with the street as closely as possible. Your guidance needs to be thoughtful and you need to have consistent, predictable growth. All those things are areas that we could have done better as a public company.
There was a lot of noise in our short public life. The volatility that we experienced – some of our own doing and some not – where we got caught in the crosshairs and that ended up involving us with areas that we shouldn’t have been in, these are all lessons learned. The biggest thing for us should we ever come back: We would want stability – head down, execute, no noise, no surprise. That’s how you engage with shareholders.
There has been a lot of concern about tech companies leaving public markets in droves and some handwringing about the hollowing out of Canada’s tech sector. What are your thoughts?
What we’re seeing here is similar to what’s happening south of the border from a valuation perspective. Because we’re a smaller market, we end up having smaller companies go public and that’s when it gets dangerous as volatility is extreme.
But Canada has a wonderful, thriving tech ecosystem. You have access to other sources of capital beyond being public. You have to appreciate that public markets in 2020 and 2021 were the best they’d been in the past 15 years, specifically for young growing tech companies. I tip my hat to all the Canadian entrepreneurs who took advantage of that. But now they have to think long and hard if they should remain public and if this the best use of their time, capital and resources – to manage a small market cap with a group of investors who may not be as motivated as in the past.
I believe we will see more companies exploring take-private transactions until valuations enter back into a more reasonable level. It’s not a Canadian-specific issue. The public market door is closed. It will open again. It’s just the nature of cycles. I think Nuvei will do better as a private company because we can focus on our business and do things that we think are appropriate and will build more value. That’s a personal decision. It’s not negativity toward being public.