Did Totvs (TOTS3) sell Techfin cheaply to Itaú (ITUB4)? CEO says market got it wrong

It is undeniable that the partnership between Totvs and Itaú for a joint venture announced this week has caught on in the market. The general tone among analysts was one of enthusiasm, but one point raised eyebrows: business values.

Totvs’ “Techfin” vertical, from which the partnership between the Brazilian technology giant and the largest Brazilian private bank emerged, was valued by the market at up to BRL 3.7 billion.

However, by making a simple account, Itaú would be paying R$ 1.06 billion for half of Techfin. That is, 100% of the new company would be worth R$ 2.12 billion, below the market value estimated by analysts.

So did Totvs sell Techfin cheap? The company’s CEO assures him not. In an interview with his Money, Dennis Herszkowicz said that there was a misinterpretation of the announced values.

Let’s go to the explanation

As Itaú reported in the material fact published on the 12th, the bank will pay Totvs R$ 610 million for half of its stake in Techfin.

In addition, the bank has committed to pay up to R$450 million in five years if the company achieves its growth and performance goals.

And yes, adding R$ 610 million to R$ 450 million, the R$ 1.06 billion account for half of Techfin, as mentioned above, remains.

But, according to Herszkowicz, the account does not consider what he sees as the main element of the deal: Itaú’s financing commitment for current and future operations.

“Having this funding commitment on time, in the format, in the volume and in the necessary price conditions, is a brutal value”, said Herszkowicz. “Simply using the value of the primary and secondary contributions and dividing by two is a mistake”.

The problem is in translating this into numbers, since the financing will depend on the variables mentioned by the executive, such as term and volume.

According to analysts at BTG Pactual, Itaú will give the joint venture “access to virtually infinite, flexible and indisputably cheap financing.”

Totvs and Itaú: a long relationship

It was at the end of 2020 that Totvs came up with the idea for the joint venture. After talking to several financial institutions, the company concluded that Itaú was the ideal partner.

But why did someone who is a reference in innovation and technology choose a traditional bank to grow Techfin?

“Although the financial market is more competitive and deregulated, we continue to believe that the credit business is large. In this regard, no one has more power than Itaú”, explained Herszkowicz.

The market saw the marriage between Totvs and Itaú as a perfect partnership.

On Totvs’ side, the more than 40,000 customers — which together represent 25% of Brazil’s GDP — provide a complete view of cash flows, credit profiles and other relevant information on operations. On Itaú’s side, access to this data will translate into efficiency gains in the supply of credit.

“We have information in a quantity, quality and freshness that no one else has and that will certainly give a degree of assertiveness to this joint venture to offer the right product at the right time”, said Herszkowicz.

Totvs Techfin

Totvs Techfin’s objective is to offer small and medium-sized companies a pioneering experience in management and financial services. The proposal is that companies that use Totvs systems to manage their businesses have access to financial services at a click away, all in the same digital environment.

“It’s something that’s already happening with financial services for individuals, but it’s unprecedented for companies,” said Herszkowicz.

Today a vertical of Totvs, Techfin will become an autonomous and independent company, that is, it will not be under the umbrella of Totvs or Itaú.

According to the executive, the bank’s participation will accelerate investments, and an important part of them will go towards hiring qualified labor. Today there are more than 300 people in the business.

After yesterday’s strong rally, Totvs shares returned part of the gains in this Thursday’s trading session. At around 2:42 pm, TOTS3 was trading down 2.91%, quoted at R$35.42. Itaú shares went in the opposite direction and rose 0.69%, to R$ 26.34.

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