JPMorgan’s Latest Fintech Fight Highlights the Pain of Sellers’ Remorse

(Bloomberg Opinion) — The venture capital bubble of 2020-2022 left a lot of investors with buyers’ remorse. But overconfidence also hurt some sellers whose deals turned out much worse than they expected. That seems to be the case with the owner of a Greek payments business called Viva Wallet and JPMorgan Chase & Co.

Viva Wallet’s backers sold a bit less than half of their company to JPMorgan for €800 million ($856 million), valuing it at €1.66 billion in 2022. The deal also gave the bank options to buy the rest of the business, which the sellers thought guaranteed them an exit valuation of at least €5 billion. It was a handsome payday to fit the times — but then fintechs crashed and a fight began to brew.

The two ended up suing each other in London in February, and a judgment last week allowed each side to claim a win of sorts. What’s interesting about the case is how much power the sellers gave to JPMorgan in their original agreement without apparently realizing it. But their David vs Goliath battle has been worth it, even if that heady exit price likely remains out of reach. 

The case is also a reminder for big banks about how tricky it can be to pick partners in the digital arms race. JPMorgan itself is still stinging from its $175 million deal for Frank, a financial-planning startup that the bank has since claimed fraudulently inflated its customer base.

With Viva, the fight got bitter quickly. The majority owners, led by Viva Wallet founder Haris Karonis, accused JPMorgan of deliberately blocking its growth plans in the US to drive down Viva’s value so the bank could buy it out cheaply. In turn, JPMorgan accused the sellers of frustrating attempts to agree to a valuation during its first option period late last year and of blocking the bank’s nominated directors, among other things.

Relations soured between Karonis and JPMorgan’s outgoing head of payments, Takis Georgakopoulos, who ran the investment. The personal animosity was so bad that Karonis celebrated Georgakopoulos’s exit in public: “I hope that the recent leadership changes within JP Morgan Payments will provide an opportunity to restart constructive dialogue,” Karonis wrote on Viva’s website after the judgement last week.

JPMorgan was attracted to Viva for its technology, which shopkeepers can use to accept payments on any device, as well as for its roster of small- and medium-sized business clients across Europe, among whom JPMorgan has limited presence. Viva fits with the US bank’s ambition to expand outside the US through its low-cost, digital-only international Chase.com brand.

Before the investment, Viva had plans to expand into the US – and those prospects were part of how Karonis expected to hit the €5 billion valuation. But there was a wrinkle: A regulation that restricted Viva’s US activities as long as it was a subsidiary of JPMorgan International Finance Ltd., the entity that made the investment. This technicality blew up when independent experts were commissioned to value Viva in December last year at JPMorgan’s first opportunity to buy out the remaining shares. Viva wanted US expansion plans included in the projections that underpinned its future value; JPMorgan did not.

The most galling aspect for Viva’s backers was that the regulatory restriction only applied while it was under the JPMorgan International Finance  entity. Any other owner, including other parts of JPMorgan, wouldn’t face the same strictures.

Viva’s big win in the London lawsuits — the shareholder’s agreement was “expressly governed by English law and contains an exclusive jurisdiction clause in favour of the English Court,” according to the judgment — was the decision that the independent valuers should disregard this restriction and be allowed to consider a potential US expansion. But that doesn’t mean any wild growth fantasy can be used; the assumptions have to be reasonable, and approved by JPMorgan.

All this matters because of how JPMorgan’s options work. There are four periods, each six months apart, when Viva gets valued and JPMorgan can exercise its right to buy the business. In the first three, Viva’s backers can refuse to sell if the valuation is less than €5 billion, but on the fourth occasion they have no choice: JPMorgan gets to buy the business if it wants to at whatever price the valuers say it’s worth. So for the final appraisal in summer 2025, all the power still rests with the US bank.

There were other elements to the fight, but this is the most important aspect. For Viva’s backers, their victory should lift the valuation come the final option date, but that doesn’t guarantee they’ll get anywhere near their target riches. For both sides there’s still a long way to go; JPMorgan wants Viva to get back to developing its technology, and stop using so much energy on battling the bank.

The question is whether this really will be water under the bridge. If the relationship can’t be repaired over the next 12 months, JPMorgan won’t want to consummate it. The bank will be left with a stake in a business that could be worth less than the €800 million it paid, and Viva left with a disinterested and unhelpful partner that won’t sell unless another deep-pocketed backer emerges.

JPMorgan and Viva each represent the court’s judgement as a win; but for both, there’s still a potentially a lot to lose.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.

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