The proposed acquisition of Augmentum portfolio company Cushon by NatWest Group, the FTSE 100 banking and financial services group, subject to FCA approval, was announced today (link here).
Augmentum is expected to receive proceeds of £22.8 million from the completion of the acquisition¹, representing a 46.2% uplift on the unaudited 30 September 2022 holding value of £15.6 million, a multiple of 2.1x on cost and an IRR of 66.3%². Cushon’s acquisition marks the fifth exit for the Augmentum portfolio and the third from within the wealth and asset management vertical, following the sale of interactive investor (ii) to abrdn (announced December 2021, 11x MoIC, 85% IRR), and Seedrs to Republic (completed October 2021).
As a specialist fintech fund, we see most of the early stage wealth and asset management fintech propositions in Europe. With many savings platforms — even where strong technology has been developed — teams are pursuing paths to scale that are slow and capital intensive, and would fail to deliver a compelling return on investment. Both Cushon and ii stand apart as clear exceptions.
Throughout our time as investors in ii we saw the ways in which scalable technology could fuel an asset consolidation strategy. With a market leading digital platform, ii was able to unlock synergies over and above typical asset management economies of scale through the transformation of user experience and realisation of tech-driven operational efficiencies. Over the course of Augmentum’s involvement, ii became the leading platform consolidator in the self-directed space, scaling AUM from £2 billion to £55 billion and achieving an enterprise value of £1.5 billion at exit.
Drawing from this experience, our team developed a thesis around the potential for a comparable tech-enabled roll-up strategy in the pensions space; a huge market similarly characterised by slow-moving, low-technology incumbent providers and dynamics supportive of platform consolidation following the introduction of auto-enrollment in 2012 and subsequent regulatory reforms.
Cushon first arrived on our radar in 2018, with the launch of their workplace ISA (originally distributed under the company name Smarterly). Offering a differentiated, digital experience the product quickly gained traction with major employers including EY, Siemens and Sky. Building a relationship from this point on allowed us to closely track progress, and deepen our conviction in the technology and team over time. Following the rebrand to Cushon in 2020 and expansion into the pension space with a combined organic and inorganic growth strategy, Augmentum was then optimally positioned to invest.
Augmentum’s initial and follow-on investments helped to unlock acceleration in Cushon’s M&A strategy, supporting AUM growth from £350 million in early 2021 to £1.8 billion today. Throughout our investment Augmentum held a board and observer seat with Tim Levene and Ellen Logan taking an active role in helping the company set strategy, recruiting senior talent and navigating the challenges of scaling, and of course supporting their capital raising plans.
As with all our portfolio companies, Augmentum’s investment case for Cushon was built around conviction in their potential to become a standalone business of significant scale. We remain of the view that the workplace pensions market can — and likely will — support one or more digital disruptors to an exit value north of £1 billion. On that long and often gruelling journey to scale, alternative outcomes invariably present themselves and some will choose to take the business forward in a different direction. While today’s announcement arrives earlier in Cushon’s journey in terms of timeframe than we anticipated, it nonetheless represents a positive outcome for shareholders.
We have seen an increase in fintech M&A activity by incumbent financial services firms (and indeed larger fintech challengers) in recent years as internal attempts to innovate have often ended in failure at huge cost. As quality companies that are proven at scale and represent high efficiency on capital invested continue to progress through Europe’s fintech ecosystem this trend appears set only to continue.
With an installed base of nearly one million UK business customers and no workplace pensions offering in place at NatWest, one can see a compelling strategic rationale in acquiring Cushon. NatWest will be able to access a unique technology platform with capabilities that span market leading digital service delivery and asset consolidation.
It has been a pleasure to be part of this journey alongside Co-Founders Ben Pollard and Phil Hollingdale, Chairman Duncan Howorth and the wider Cushon team. We have no doubt they will reap the benefit of a successful partnership with NatWest for many years to come.
Learn more about Augmentum’s portfolio of private fintech companies here.
¹Final completion date is subject to regulatory approval.
²Assuming completion on 20 April 2023.
This financial promotion is issued by Augmentum Fintech Management Limited which is authorised and regulated by the Financial Conduct Authority under Firm Reference Number: 811734. Augmentum Fintech Management Limited is appointed as manager to Augmentum Fintech plc. This financial promotion is for information purposes only and nothing contained in this financial promotion constitutes investment advice. This financial promotion is intended for professional investors and for retail investors who have sufficient knowledge and experience of UK listed investment trust companies. If you as a retail investor are uncertain whether an investment is suitable for you, you should seek advice from a regulated financial adviser. The value of investments, and any income from them, can fall as well as rise and you may not get back the amount invested. Reference to “Augmentum” or “Augmentum Fintech” refers to “Augmentum Fintech Management Limited” unless otherwise stated. Reference to the “Company” refers to Augmentum Fintech plc. Reference to “we”, “our” and “The Augmentum Team” refers to employees, consultants or advisors of/to “Augmentum Fintech Management Limited”.