One of Canada's unheralded financial-technology success stories is cashing out. Vancouver-based consumer payments processing firm TIO Networks Corp. has been sold to Silicon Valley giant PayPal Holdings Inc. in a $304-million all-cash deal, 20 years after it was co-founded by Iranian immigrant Hamed Shahbazi.
Paypal will pay $3.35 in cash per share for TIO, just 7 per cent above its closing price Tuesday but a 25-per-cent premium over its 90-day average on the TSX Venture Exchange. The deal, expected to close in the second half of 2017, will be completed by way of a court-approved plan of arrangement.
"Its a very fair transaction for both sides," Mr. Shahbazi said. "Shareholders did very well here."
TIO, co-founded in 1997 by Mr. Shahbazi when he was a newly graduated civil engineer from the University of British Columbia, started life as Info Touch Technologies Corp., a provider of Internet kiosks to retailers and malls.
It went public in 1999 with Mr. Shahbazi in charge and his father, Mohsen Shahbazi, also an engineer, on the board of directors.
The company grew modestly but steadily through the 2000s, expanding its kiosks to payday loan providers and convenience stores to provide self-service bill payment options aimed at "underbanked" U.S. consumers.
The renamed TIO eventually evolved to provide its services through a cloud-based software platform. Revenue increased from $8-million in 2005 to $40-million in 2013.
But the stock, which traded for less than $1 for most of the 2001 to 2014 period, has tripled since then on the strength of three transformative acquisitions in the United States – for Global Express Money Orders Inc., ChargeSmart USA Inc. and Softgate Systems Inc. "That's been a big part of our focus," Mr. Shahbazi said.
With the deals, the company's revenue nearly doubled in size from 2013 levels, to $74.7-million in its most recent fiscal year, ended last July 31, and the company's bottom line improved as it booked a $4.2-million profit last year. With the deals, TIO became a leading digital billing and receivables processor that handled more than $7-billion (U.S.) in transactions last year as it expanded its reach to 65,000 retail locations across North America – including Ace Cash Express, the largest chain of payday loan providers in the United States, and convenience store giant Circle K – connecting customers to 10,000 billers, including many large wireless and utility companies.
"It's expensive to be poor and we want to bring financial services to the underserved," said John Kunze, vice-president of PayPal's digital money transfer business Xoom, which itself was purchased by the Silicon Valley giant for $890-million (U.S.) in 2015. "TIO is an amazing asset … it's proven and very scaled. This just helps bring PayPal to a broader market."
Brent Holliday, chief executive officer of Garibaldi Capital Advisors, a technology-focused boutique investment banking firm, has known Mr. Shahbazi for the past decade. Mr. Holliday called TIO a "classic Canadian 20-year overnight success story."
He noted that several technology entrepreneurs had gotten their start working at TIO. "It's been a good training ground and incubator for tech firms in Vancouver."
Mr. Shahbazi, whose stake in TIO, excluding stock options, is worth $10-million, will stay on in an executive role with PayPal. He cited the company's "similar vision in terms of financial inclusion" as a reason for choosing to sell the company.
Among Mr. Shahbazi's other interests is his position as a board member of BroadBandTV Corp., whose founder, fellow Iranian immigrant Shahrzad Rafati, is one of his closest associates. BroadBandTV is a leading global player in online video, recently put on the block by its 51-per-cent owner, European conglomerate RTL Group.