The new preference shares could see the shareholdings of some FNZ staff significantly cut.
FNZ shareholders have seen their equity diluted by up to $3bn (£2.3bn) following a new equity issue by the platform tech provider.

In a letter seen by Citywire, FNZ’s new CEO Blythe Masters informed shareholders that the issue of preference shares has hit the value of all holdings in the private-equity backed business, with some classes of shares taking a bigger loss.

‘The A1 and A2 preference shares dilute all shareholders by $2-3bn, depending on the timing of redemption, in addition to the 11% dilution of Class A to C Shares caused by the warrants,’ Masters said in the letter.

The latest preference share issue is likely to be a blow for some shareholders who could see their equity diluted by a significant percentage, depending on what the business is valued at.
Preference shares rank above equity and below debt. It is understood these preference shares are not convertible into ordinary shares. The warrants give a holder the rights to buy common shares at pre-agreed terms.

The letter, sent last week to shareholders, also referred to a ‘catch-up offer’. This gave all eligible FNZ shareholders, including certain current and former employees, the ability to take part in the fundraising ‘on the same terms as existing major institutional shareholders’, an FNZ spokesperson said.

‘This provided an opportunity to maintain their ownership levels and mitigate any dilution,’ the spokesperson added.

In the letter Masters added the business ‘cannot rule out’ further capital raises which may ‘be potentially dilutive to shareholders’.
Masters, the founding partner of FNZ’s private equity backer Motive Partners, was appointed as the firm’s CEO last August, when the platform technology company’s founder Adrian Durham stepped aside.

At the time of her appointment, it was announced that FNZ had raised $1bn from existing shareholders.

In the letter Masters went on to say that the two different fundraises in the past year were all ‘unanimously approved’ by the board.

‘In taking these decisions, the directors gave careful consideration to their fiduciary duties, the impact on all shareholders, and whether there were viable alternative financing sources,’ she said. ‘Having given these important matters careful consideration with the involvement of external expert advisers, the board unanimously concluded that these actions were in the long-term and best interests of the company.’

When asked, an FNZ spokesperson said: ‘The primary objective of the fundraising was to position FNZ for sustained growth while continuing to deliver strong support to its clients.’

It is understood that all of FNZ’s major institutional shareholders bought shares, roughly in proportion to their existing ownership as part of the latest fundraise. Motive Partners remains a minority investor, with a single digit percentage of the company.

What does this mean for shareholders?
Founded in New Zealand 2003 by Durham, FNZ is now a global fintech business with assets under administration of $1.5tn (£1.2tn). It provides custody and the platform technology for many of the UK’s biggest platforms, including Aviva, Quilter and Abrdn.

In 2022, the business had a $1.4bn capital fund raise from its investors the Canada Pension Plan Investment Board and private equity firm Motive Partners, which valued the business at over $20bn.

Singaporean investor Temasek and the private equity firm Generation Investment Management, founded by former US vice president Al Gore, also hold stakes, following earlier capital raises.

The rest of the equity is owned by the former CEO Durham, who remains a ‘significant shareholder’, along with 3,000 FNZ staff.

Durham told Citywire in an interview last year that issuing shares to staff is a central feature of how the company incentivises its employees, with staff owning a ‘share of the value’.

The latest share issue could cause disquiet among some of the current employee-shareholders who have seen their equity diluted and will receive less for their shares if or when the business is sold or listed.

Although it received a private valuation of $20bn in 2022, FNZ has since faced challenges.

Last April the business was issued with a section 166 skilled person review by the FCA and in October it agreed to an FCA restriction which stops it from taking on new clients in the UK without the regulator’s consent.

FNZ, which is domiciled in New Zealand, made a loss of $550.2m in 2023, which Durham attributed to the firm’s acquisitions in in the US, Canada and Europe, along with $113.4m of debt interest payments.

As well as its latest equity investment, FNZ has a $2.1bn term loan and a $300m revolving credit facility, following a refinancing last November.

In the letter Masters refers to the debts and the existing preference shares and says this means the ‘valuation point of $6.8bn is relevant to your consideration’.

It is understood this $6.8bn figure is a hurdle valuation the business needs to reach for common share classes to receive a payout if the business is sold or floated.

It is also understood the latest funding round did not provide a valuation for the business. Without an enterprise value of the business, it is impossible to say what the current dilution means in percentage terms for certain shareholders.

A modest write down that assumed the value of FNZ is now £15bn, £5bn down from 2022, would mean some shareholders have seen their stake cut by just over a quarter, unless they participate in the catch-up offer.