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FinTech sells at higher valuation by de-risking operations

An international FinTech company backed by a leading global Venture Capital firm sells at a significantly higher valuation than anticipated after de-risking operations through the implementation of a comprehensive operational risk management (ORM) framework complemented by structured insurance for post-close Residual Risk.

Challenge

An international FinTech company engaged several consultants through a formal RFP process to implement an operational risk management (ORM) framework ahead of its intended sale, which included the Big Four accounting firms. Management was specifically concerned with Merchant Fraud risk and Cyber risk and the ability for the ORM framework to clearly mitigate such risks.


Discovery

Having been awarded the RFP mandate, the team at Deshret Capital devised a comprehensive plan to minimize the dollar amount of Risk present within the operations of the Client. The plan included (a) identifying all company risks, quantifying Operational Risk including its correlations with Financial Risk, Compliance Risk, and other types of Risk as cross-checked by Management; (b) building an ORM framework to reduce the initial quanta of Risk through controls including a corresponding maintenance plan; (c) performing a cost/benefit analysis on Insurance to hedge against any post-close Residual Risk; and (d) advising on the variance between a risk-adjusted valuation and one absent of reduced risk metrics.


Impact

  • Successful implementation of a company-wide ORM framework reducing the dollar amount of Risk in operations by 60%.
  • Structured Insurance for post-close core residual risks (ex. Cyber risks).
  • Structured Transactional Liability (TL) insurance with a payout ratio over 90%.
  • Advised Client on its cost of capital calculations and risk adjusted valuation subject to renewed risk metrics, leading to a 25% premium.
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