Wealthsimple’s valuation was nearly halved by the largest shareholder, IGM, controlled by Power

Spread the love

An icon of the Wealthsimple Trade app is displayed on a smartphone on December 15, 2020.Jesse Johnston/The Canadian Press

The largest shareholder in one of Canada’s most prominent startups, Wealthsimple Technologies Inc., has cut the valuation of its holding for the second consecutive quarter, as tech companies continue to face mounting pressure.

IGM Financial Inc., IGM-T, a subsidiary of Canada’s Power Corp., POW-T revealed in its second-quarter financial statements released late Thursday that it had lowered the valuation of its 24 percent stake in Wealthsimple to $492 million. as of June 30, a 47 percent drop from its book value of $925 million on March 31. IGM now takes its stake in Wealthsimple to 42.6 percent of its $1.153 billion valuation as of last December 31.

“This change in fair value is consistent with the continued decline in stock markets and public market peer valuations, and Wealthsimple is focusing on its core business lines and revising earnings expectations,” IGM stated. Power will reveal the impact of the devaluation on its books when it reports earnings on Friday.

Wealthsimple is an online financial services company that saw a surge in new retail clients during the pandemic with its zero-fee trading platform. It was one of Canada’s biggest beneficiaries of soaring valuations and investor interest in tech companies during the pandemic, doubling assets under management in each of the last two years, reaching $18.8 billion on 31 December. last December, with 1.6 million customers.

In May 2021, Wealthsimple became one of the most valued private technology companies in Canada when it raised $750 million at a $5 billion valuation. It was the second time in seven months that Wealthsimple had raised a nine-figure sum from private investors, as interest in its US counterpart, Robinhood Markets, Inc., soared as millennials flocked to trading platforms to buy. meme stocks and cryptocurrencies.

Both have been hit by bad news this year. Robinhood said this week that it would reduce its headcount by 23 percent and revealed in its second-quarter report that it had seen a drop in monthly active users and assets under custody. Robinhood previously cut 9 percent of staff in April.

Meanwhile, Wealthsimple laid off 13 percent of its workforce in June. Wealthsimple CEO Mike Katchen said at the time that clients were now “living through a period of uncertainty in the market that they have never experienced before.” IGM statements on Thursday suggest that uncertainty weighs on Wealthsimple’s outlook and performance.

A Wealthsimple spokeswoman said Katchen was unavailable for comment.

Even with the latest downgrade, Wealthsimple has lost less of its value than publicly traded Robinhood, whose shares have sold off more than 80 percent since their 52-week high.

The $5 billion valuation given to Wealthsimple last year provided the strongest validation to date of Power’s evolution from a serious owner of traditional financial services companies to one of the biggest supporters of emerging digital bank challengers. they target underserved millennials and small businesses.

However, skyrocketing valuations of Power-backed companies, including Wealthsimple and Koho Financial Inc., made Power’s holdings so large on paper that they became a significant part of its holdings. Increasingly, Power’s fortunes were tied to the most volatile and risky startups rather than central anchors like IGM and Canada Life.

The arrival of rising interest rates triggered by skyrocketing inflation, plus the hangover from a surge in digital company values ​​during the pandemic era, has led to a widespread drop in tech stock valuations.

Entities controlled by the power, including IGM, have collectively invested in Wealthsimple in more than eight funds. They sold part of their holdings last year, but still collectively owned 42.6 percent of Wealthsimple’s capital and 60.3 percent of the voting rights as of March 31.

IGM is still ahead, on paper, in Wealthsimple: the cost of its share of the startup and other corporate investments was $235.8 million. They are now valued at $599 million.

Your time is valuable. Get the Top Business Headlines newsletter conveniently delivered to your inbox morning or night. sign up today.

#Wealthsimples #valuation #halved #largest #shareholder #IGM #controlled #Power

Leave a Comment

Your email address will not be published.