Japan’s SBI Holdings Inc. is set to acquire a significant majority stake, exceeding 70%, in the German fintech company Solaris SE. This acquisition comes as part of a new fundraising round for Solaris, a move that will substantially reduce the struggling company’s valuation. The deal highlights the challenges faced by European fintechs amid a challenging economic environment and increased regulatory scrutiny.
Solaris has secured approximately €100 million ($103 million) from SBI for the stake. In addition to SBI’s investment, Solaris will also receive funding from German exchange operator Boerse Stuttgart Group and existing investors. This brings the total capital raised to approximately €150 million. The comprehensive financial package also includes new AT1 bonds. This influx of capital is intended to provide Solaris with sufficient funding to reach profitability, which is projected to occur within the next two years. SBI previously led a €96 million funding round for Solaris in March, demonstrating its continued interest in the company.
Solaris Faces Headwinds in Challenging Market
The German fintech landscape has been significantly impacted by the country’s economic downturn. Larger fintech companies, like Solaris, face high capital requirements in Germany, placing further strain on their operations. A recent KPMG report underscores the challenges faced by fintechs in this environment, citing rising interest rates, increased regulatory scrutiny, and diminished investor support as contributing factors. These pressures have forced several formerly billion-dollar companies, including Solaris and Wefox Holding AG, to accept lower valuations.
Solaris, a provider of white-label services to other lenders, was valued at approximately $1.6 billion in 2021, according to Pitchbook. The company’s current struggles to achieve profitability stem from various factors, including a dispute with the German financial regulator BaFin, writedowns on a previous acquisition, and costs associated with onboarding a credit card portfolio from the German motorist club ADAC. In an effort to reduce expenses, Solaris has significantly reduced its workforce from over 700 employees to approximately 450.
Strategic Investment and Future Outlook
Boerse Stuttgart, a major client of Solaris, confirmed its participation in the financing concept, emphasizing a collaborative effort with partners to strengthen the company’s long-term sustainability. This strategic investment underscores the importance of Solaris’s white-label services within the financial ecosystem. While SBI declined to comment on the deal, their substantial investment signifies a strong vote of confidence in Solaris’s potential for future growth.
Solaris boasts a diverse investor base, including prominent institutions such as Banco Bilbao Vizcaya Argentaria SA, ABN Amro Bank NV, and Visa Inc., alongside venture capital firms like Lakestar and HV Capital. This investment round, while significantly impacting the company’s valuation, provides a crucial lifeline for Solaris to navigate current market challenges and achieve its profitability goals. The success of this turnaround will depend on Solaris’s ability to address regulatory concerns, streamline operations, and capitalize on market opportunities. The coming months will be critical for Solaris as it implements its restructuring plan and works towards a more sustainable future.
