Nubank desaba com potencial M&A. O que o mercado teme?

Nubank's shares fell more than 8% on the Nasdaq after reports that the digital bank was negotiating to acquire the British Monzo Bank. This transformational deal for the Brazilian fintech comes with significant execution risks. After the recent drop, Nubank is now valued at $60 billion on the Nasdaq, down 21% over the past twelve months.

The deal would value Monzo between £8 billion and £10 billion, with alternatives including Monzo selling up to 15% to venture capital funds in a new round, or a London Stock Exchange IPO. A senior bank employee told Brazil Journal that it's hard to evaluate the deal without all the information, but it carries a significant execution risk.

The English market is heavily regulated, making it a challenge to deal with a new regulator. Additionally, Monzo is just entering the U.S. market and has never done a M&A of this size. If priced right, it could be a very unique and specific asset. However, the current asking price seems too expensive. Nubank's head of M&As has a negative experience with M&As, citing a poorly executed Easyinvest acquisition for R$2 billion before the IPO that suffered from poor integration and low delivery.

Nubank has made other smaller M&As and investments, mostly acqui-hires like Hyperplane. Analyst Gustavo Schroden of Citi sees strategic upside in the transaction, noting Monzo would provide immediate diversification in developed markets, reduce exposure to currency volatility in emerging markets, and enable Nubank to implement its low-cost credit origination algorithms on Monzo's highly loyal consumer base.

However, there are also significant risks. Integrating cross-border banking operations in different macroeconomic environments would likely face intense scrutiny from the Brazilian and UK regulators, requiring rigorous capital segregation, higher compliance costs, and complex multinational solvency supervision. Founded in 2015, Monzo operates in England, Scotland, Wales, Northern Ireland, and is now expanding to Ireland and Spain with 16 million customers, including 15 million individuals and 1 million PJs.

Monzo generated £1.7 billion in revenue last year, a 39% increase from the previous year, and a pre-tax profit of £172.6 million, a 20% increase. Bradesco analyst Marcelo Mizrahi is more skeptical, saying the potential transaction would distract from Nubank's current focus (U.S. and Mexico) while it's unclear if the operation aligns with the company's expansion plan.

Bradesco also noted the valuation implies a P/L multiple of 93-116x and 5x revenue, which seems expensive for a company showing little profit growth and a relatively small credit portfolio. The valuation is significantly higher than Nubank's own multiples of 21x and 3.5x revenue. Ultimately, Citi's analyst believes Monzo could provide scale for Nubank to establish itself outside Latin America, but success would depend on Nubank's ability to replicate its extremely low operational cost in a highly regulated G10 banking environment with high cost structure.