Tio Networks (TNC.V) seizes untapped niche and becomes plump takeover target for PayPal

Even the 21st century evolves. We first thought that the Internet, spun by a web of computers would free the world. We were woefully wrong.

The real revolution is the democratization of interconnectedness. Bringing technology to the “unwashed” masses in meaningful ways.

Tio Networks (TNC.V) took fintech to a new level and focused on a demographic that everybody else in the sector were ignoring – the underbanked.

I wrote about this company back in 2015 and I knew if they were able to execute on this niche, which makes up almost 25% of the population in the U.S. alone, they would become a formidable player within the space and attract some major interest from industry heavyweights.

Tio Networks is helmed by Chairman and CEO, Hamed Shahbazi. Shahbazi founded Tio Networks back in 1997 when he began his career of mindful entrepreneurship.

Shahbazi’s approach to business speaks of a new breed of corporate executive. Those that seek to succeed by doing good.

This isn’t altruism, it’s a deep understanding of the symbiotic relationship commerce has with society and Shahbazi is passionate about it.

In fact, he regularly mentors founders and entrepreneurs of early-stage companies on operating as an “impactreneur”.

Now, I’m not saying this to get you all gooey inside. Yes, what he is doing is admirable, but in all reality, it’s an incredibly smart choice.

Shahbazi took a single-channel kiosk-oriented solution and expanded the company into a multi-channel payment solution provider.

Since 1997, Tio Networks spread to cover bill payment and financial services from the original self-serve kiosk to retail point-of-sale, mobile and web-based methodologies.

In fiscal 2016, the company processed more than $7.0 billion in transactions and generated $74.0 million in revenue. That’s just in the North America.

Tio Networks is covered in almost 30 awards such as Shahbazi getting named TSX Venture Tech Executive of the Year in 2014 and the company earning the title of TSX Venture Tech Stock of the Year in that same year.

Tio has also been recognized as a Deloitte Technology Fast 50/500 company six times.

So, it is of little surprise that PayPal (PYPL), created by fellow “impactreneur” Elon Musk, made an announcement yesterday that it intended to acquire the company for $3.35 per share in cash or an approximate $304 million equity value.

The friendly offer represents a 25.2% premium on Tio’s 90-day volume-weighted average price as of January 9, 2017.

This is a sweet offer and it comes at the right time for Tio as I feel the company has reached a point where it will need more capital and infrastructure than it can currently muster to continue its growth curve.

Yes, last year’s acquisition of Softgate was important for the company and shows tremendous upside, but I also think it was a heavy undertaking for the Tio and just illustrated the necessity for getting involvement from an industry major.

With a market cap of more than $50.0 billion, PayPal certainly rates as a major within fintech.

News of the impending transaction dropped around noon (PST) on the 14th and share price jumped $0.17 before close of trading.

PayPal is getting a hell of a deal with this acquisition as it gives them unprecedented reach into a previously untapped market segment.

This acquisition facilitates the fintech giant’s transition into bill payment with approximately 14.0 million consumer bill pay accounts.

Tio will now act as a service within PayPal.

Getting on the ground with the Tio Networks acquisition will cement PayPal as the solitary giant in the payment processing space.

One man, one vision, one hell of a pay day – even PayPal shares went up.

PayPal President and CEO, Dan Schulman commented, “By acquiring TIO and integrating bill payment into our global payments platform, PayPal adds another key service in our efforts to become a part of a consumer’s everyday financial life. Worldwide, more than 2 billion** people do not have affordable access to basic financial services, making it difficult and expensive for consumers to carry out basic financial tasks, including bill payment. TIO’s digital platform, and physical network of agent locations make paying bills simpler, faster, and more affordable. We are excited by the opportunity to extend this valuable service to our existing customers and welcome new billers and customers to PayPal.”

Shahbazi added, “We founded TIO to make speed and access part of the bill payment experience for the underserved, and we believe that we have created affordable products to serve the needs of all customers. Our mission fits perfectly with PayPal’s vision to democratize money. As part of the PayPal team, we believe we will accelerate our growth through expanded distribution and continue increasing access to more billers and services.”

If you had bought into Tio back in June, 2015, it would have cost you about $0.99 per share and you’d be celebrating a ~215% return on your investment now.

PayPal knew what they were doing on this one.

So, were you one of the smart investors that got in early on this ride?

If not, take it as a sign that doing good can be profitable and keep your eyes peeled for the next visionary.

 

–Gaalen Engen

http://twitter.com/gaalenengen

 

FULL DISCLOSURE: Tio Networks is NOT an EQUITY.GURU client and has no connection to the author, although the author wishes he had the money in 2015 to invest in the company. Do your due diligence before making any investment decision.

 

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