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Did JPMorgan overpay for Nutmeg?

Last week, JPMorgan announced it was acquiring leading UK robo-adviser Nutmeg, but is it a smart move for the US banking giant?

By Ryan Weeks

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Last week, JPMorgan announced it was acquiring leading UK robo-adviser Nutmeg. The American banking giant plans to make Nutmeg “an integral part” of its international offering, complementing the launch of its long-awaited UK digital bank later this year.

The announcement has garnered a lot of attention, but is it a smart move for the Americans?

First, let’s set the record straight on the price.

No valuation was disclosed but early reports suggested Nutmeg is being bought for around £700m, citing “people familiar”. In fact though, Sifted can report that the valuation was actually a fair bit less than that.

A person with direct knowledge of the deal said the valuation is actually between £560m and £600m — while another person close to the transaction said that range is “remarkably accurate”. JPMorgan declined to comment.

So the valuation is marginally less impressive than previously reported, but does it remain a successful exit — one for the wider fintech sector to get excited by? The prevailing sentiment in the industry is that it is.

“Wow! That’s a lot… I think normally, these types of companies trade at well below 10% of AUM,” said one fintech executive.

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Nutmeg has amassed a little over £3.5bn in assets under management since launching in late 2012. Its valuation is therefore roughly 16-17% the size of its AUM.

Nutmeg says it has grown at a rate of 70% year-on-year and today boasts over 140k customers. It’s a tricky business model though.

“A company with much higher growth can justify a premium but Nutmeg has been around since 2012 and only has £3.5bn of AUM, so it doesn’t seem to be a growth story,” said the executive.

The deal seems, therefore, a little on the expensive side from JPMorgan’s perspective. Then again, the bank is hardly strapped for cash — and there are surely powerful synergies between Nutmeg and its soon-to-launch digital bank to capitalise on (more to come from us on Project Dynamo soon…)

But for Nutmeg’s founders and investors (including crowdfunders), and indeed for other fintech founders eyeing an exit, the price tag can only be seen as a victory.

Nutmeg raised around £3.8m via Crowdcube in June 2019 at a pre-money valuation of £251m — suggesting retail investors may have doubled their money. More good news for fintech, according to Darren Westlake, cofounder and CEO of Crowdcube.

“This is another huge validation for British fintech and what’s been achieved over the last decade. More broadly, mergers and acquisitions are critical to the tech ecosystem in helping the sector to thrive in the future,” he said.

Ryan Weeks covers fintech at Sifted. He tweets from @RyanJamesWeeks and coauthors our new fintech-focused newsletter. Sign up here.

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