We see opportunity to become the leading consumer finance company in Canada: Wealthsimple CEO
Power Corp. of Canada’s Wealthsimple online brokerage, flush with cash after a funding round that valued it at about $4 billion, may put some of that money to use making acquisitions as it works to expand its user base more than sevenfold.
Founder and Chief Executive Officer Michael Katchen has been working on building out capabilities -- including cash, checking, insurance and mortgage products -- to add to the firm’s trading and automated-investing investing platforms. The goal is to become users’ primary financial institution and boost the user base to 15 million from its current 2 million in the next five years, which would make it the largest consumer-finance company in Canada.
With Wealthsimple and Power Corp. raising $750 million in a funding round announced Monday, the firm has the wherewithal for deals that could accelerate that growth. Katchen credits Wealthsimple’s acquisition of ShareOwner Investments Inc., announced in 2015, with transforming the company by providing it with the back-office infrastructure it needed to become a full-scale investing platform.
“We’re interested in infrastructure like that -- infrastructure companies across the breadth of financial services -- and then products that we’re excited about as part of the ecosystem,” Katchen said in an interview. He pointed to Wealthsimple’s 2019 buyout of SimpleTax as an example of the kind of product acquisition he’d be interested in.
The latest funding round consisted of a $250 million primary offering by Wealthsimple and a $500 million secondary offering by Power Corp. and its subsidiaries. Power Corp., the Canadian financial conglomerate controlled by the Desmarais family, will hold 43 per cent of Wealthsimple after the financing, including the portions owned by Power-controlled IGM Financial Inc. and Great-West Lifeco Inc.
The financing announcement confirmed a Bloomberg report on April 30 that the company was in talks to raise money at a valuation of at least $4.3 billion. Wealthsimple raised $114 million at a $1.5 billion post-money valuation in October, giving it unicorn status.
The round was led by existing investors Meritech Capital Partners and Greylock Partners, the Toronto-based company said Monday. Also participating are Canadian celebrities including rapper Drake, actors Ryan Reynolds and Michael J. Fox and basketball player Kelly Olynyk.
The news of the new funding round also pushed up shares of Power Corp. and its subsidiaries. Power Corp. rose 1.5 per cent to $36.34 in Toronto on Monday, while IGM advanced 2.2 per cent to $44.86 and Great-West added 0.3 per cent to $35.73.
Wealthsimple is benefiting from surging valuations for tech companies and an increase in online trading that has fueled rivals such as Robinhood Markets Inc., which said in March it had filed confidentially for an initial public offering. Katchen acknowledged that the market is primed for IPOs of companies like his, and said Wealthsimple “could go public today,” but that he wants more time before taking that step.
“In a market like this, where IPOs are being received so well, I think people rush to go public, and that can create all sorts of bad consequences where you introduce new pressures on short-term earnings,” Katchen said. “We’re building a business for the very long term, and we want some more time to make sure that we make those investments before introducing those sorts of pressures so we build the business in the right way.”