Thursday, May 30, 2024

Large M&As deals occur in unlikely sectors / Metafuels AG bets on methanol-to-jet technology / Merck set to buy Eyebiotech for $3B

Plus, BaFin to lift anti-money laundering restrictions on N26

Inside Startups

For May 30, 2024

Here’s your daily Startups briefing:

🤝 Large M&As deals occurred in unlikely sectors in Q1 2024, such as the auditing and compliance software sector
⛽ Metafuels AG is betting on methanol-to-jet technology as a viable alternative to sustainable aviation fuels
🔬 Merck is set to buy biotech startup Eyebiotech for $3B to expand into new therapeutic areas

Thank you.

Karan
p/karan-chafekar

Large M&A deals are happening in some unlikely sectors so far this year. Last week, software investor Hg announced its intent to acquire auditing and compliance software maker AuditBoard for over $3B, making it the largest M&A deal involving a U.S. venture-backed company this year. The second largest M&A deal to close this year was Cox Enterprises' acquisition of government software provider OpenGov for $1.8B.

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AuditBoard's niche in financial auditing software helped it secure a lucrative acquisition offer.
The profitable company recently reported over $200M in annual revenue and has raised $43.6M in venture funding over the past decade.
AuditBoard's mega-exit underscores a rising investor interest in compliance and auditing startups.
Large rounds to close in the sector include a $100M Series B into auditing productivity tools maker DataSnipper, a $100M Series E into accounting workflow automation firm FloQast, a $22M funding into audit analytics tools developer Supervizor, and a $6M Series A for AI-powered tax compliance automation firm Kintsugi AI.
Intuit's $170B market capitalization as a pioneer in tax software shows the massive market opportunity in the sector.
Private equity is also betting big in the sector, with Vista's $8.4B buyout of tax compliance firm Avalara in 2022.

Metafuels AG is betting on an emerging technology called methanol-to-jet tech to make synthetic jet fuel that could help airlines meet emissions reduction targets.

Relevance: The technology offers higher emission savings than alternative sustainable aviation fuels (SAF). While more technologically advanced than today's bio-based SAF, Metafuels' SAF relies on green hydrogen from water and renewable power. The startup expects its ultra-low lifecycle emissions fuel to command a premium price. However, Metafuels claims airlines will need fewer liters of its e-SAF versus bio-SAF to achieve the same emissions reductions, ultimately lowering their compliance costs. Additionally, the fuel is compatible with existing infrastructure. The Swiss startup is backed by investors like Energy Impact Partners and Contrarian Ventures.

Why it matters: With European airlines facing mandates to start blending in SAF from 2025, Metafuels aims to get its methanol-to-jet technology accredited early next year when its Swiss demonstration plant opens. A larger commercial facility is also planned for Denmark in the long term.

The U.S. Defense Innovation Unit (DIU) awarded a $2.5M contract to The Spaceport Company, a startup developing mobile sea-based rocket launch pads. The startup will use the proceeds to develop a prototype ocean-going launch complex built on a repurposed Navy torpedo recovery vessel. The initiative is part of DIU's new Novel Responsive Space Delivery program, which aims to use sea-based launch platforms to reduce vulnerability and congestion at traditional spaceports.

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Under the new DIU program, The Spaceport Company will convert a decommissioned 180-foot Navy torpedo recovery ship into a functional launchpad.
It purchased the vessel in February and is outfitting it at a Mississippi shipyard, aiming for initial testing later this year.
Initial missions will focus on hypersonic weapon tests and scientific research payloads, with a long-term goal of supporting small orbital rockets.
Last year, the company got a $1.5M contract under a separate DIU program to convert offshore oil rigs into floating launch sites.

Biopharmaceutical giant Merck & Co. is acquiring U.K. biotech Eyebiotech Ltd. to bolster its pipeline of eye disease treatments. Merck has offered a price of $3B, which includes an upfront payment of $1.3B, with the remaining $1.7B contingent upon meeting future business goals. The deal gives Merck access to Eyebio's lead asset Restoret, an experimental antibody targeting age-related macular degeneration and diabetic eye diseases.

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The transaction highlights Merck's drive to diversify beyond its top-selling cancer drug Keytruda ahead of anticipated pricing pressure.
While the company raised its guidance for 2024 based on Keytruda's strength, Merck is deploying its M&A firepower to expand into new therapeutic areas.
CEO Rob Davis is seeking M&A deals in the $1B to $15B range to broaden its treatment pipeline.
Last year, Merck acquired Prometheus Biosciences for $10.8B and Acceleron Pharma for $11.5B.

Web hosting platform Hostinger reported 57% YoY revenue growth in 2023, ending the year with €110.2M ($119.9M). The firm surpassed the €100M ($108.8M) mark for the first time throughout its history. The Lithuanian startup also became profitable on an EBITDA basis for the first time, reporting a €2.4M ($2.6M) profit.

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A key driver of Hostinger's breakthrough performance was the adoption of AI across its hosting, e-commerce, and web services offerings.
The company launched AI tools to simplify website building, content generation, SEO optimization, and customer support while reducing internal costs through automation.
Hostinger's customer base swelled by 57% YoY to 2.42M, with top markets of France, the U.S., India, Brazil, Indonesia, Spain, and the U.K. accounting for the most active users.
CEO Daugirdas Jankus claims Hostinger maintained a consistent 60 to 70% YoY growth rate over the past seven years.
With significant untapped market opportunity, he expects the company to maintain this growth through 2024 as it doubles down on its AI-powered product strategy.

Germany's financial regulator BaFin is set to lift the anti-money laundering restrictions imposed on fintech startup N26 starting June 1, 2024. The Berlin-based digital bank has been operating under a customer signup restriction imposed by BaFin since 2021, capping new signups to 50,000 new customers a month. The cap was increased slightly to 60,000 customers a month at the end of 2023.

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BaFin introduced the restrictions to force fintechs, like N26, which grew rapidly through aggressive fundraising, to improve their anti-money laundering processes.
Last week, BaFin fined N26 €9.2M ($10M) for failing to properly report suspicious activity in 2022.
N26 anticipated the fine and had already set aside a certain sum from its 2022 financial statements.
The startup claims to have invested €100M ($108.8M) since 2022 to bolster its compliance team and anti-money laundering processes.
N26 reported a €100M ($108.8M) loss in 2023. However, the company expects to reach "monthly profitability" during the second half of 2024.

Quick Hits:

Thinking about growing your business? We'll work as hard as it takes to make Ohio your competitive advantage.*
Gov. Tony Evers and Wisconsin's economic development agency established a $100M Wisconsin Investment Fund to offer financial assistance to local startups. The state allocated $50M from the funds received under the U.S. Treasury's State Small Business Credit Initiative. The remaining $50M will come from private investors.
Vimeo's former chief marketing officer Lynn Girotto joined experience management technology startup Qualtrics in the same role. Girotto also held the CMO position at customer data tracking startup Heap.
Brazilian fintech startup Olist is expanding its banking unit, introducing payment and invoice processing and tap-to-pay technology on its app. The banking unit will create a new revenue stream for the business, with Olist expecting to process 15% of its annual transactions, worth 4B reais ($769M) in-house by the end of the year.
Alternative proteins startup ProForm Food Group and its three subsidiaries entered voluntary administration. On May 22, 2024, the firm appointed KPMG Australia's Gayle Dickerson and James Dampney as voluntary administrators.
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