Jupiter Asset Management is in talks to sell its stake in UK digital bank Starling at a price that could imply an up to 40 per cent drop in its valuation since April, according to people with knowledge of the discussions.
The new implied valuation of £1.5bn, first reported by Sky News, compares with a previous figure of more than £2.5bn following a funding round in April, though internal Jupiter benchmarking put the April value at closer to £2bn, people with knowledge of the details said.
“Starling has been one of the best performing assets in the Jupiter UK Mid-Cap portfolio,” said London-listed Jupiter. “We actively and prudently manage out investments and a sale of our stake would realise a healthy return for clients which can be recycled into new investment opportunities.”
Starling is the largest holding in Jupiter’s UK mid-cap fund at 7.6 per cent. The fund is down 20 per cent over the past three years, and ranks in the bottom quartile compared to peers.
Talks on a stake sale worth around 7 per cent of Starling are at an early stage, according to other people familiar with the situation. Other existing investors such as Goldman Sachs would have right of first refusal.
People familiar with the talks said that demand for the stake was oversubscribed and that new buyers could come in at a higher price.
During the coronavirus pandemic, Starling switched focus from purely targeting retail customers to also providing government-backed business lending. It has also expanded its mortgage portfolio with acquisitions in recent months.
The bank’s £2.5bn valuation came from a £130.5mn funding round in April, as it sought to build a “war chest” for expansion.
Investment trust Chrysalis, which is managed by Jupiter, also holds a nearly 10 per cent stake in the bank but is not involved in the current sale.
Starling declined to comment.
Part of Jupiter’s motivation for selling is that it needs to avoid breaching a 10 per cent fund ceiling on unlisted holdings in the mid-cap fund. Starling’s performance relative to struggling listed stocks in the fund means it has come close to hitting that limit in recent months.
Other fintech start ups have suffered as inflation and other economic worries have gathered pace. The value of buy now, pay later group Klarna has fallen 85 per cent, and shares in cross-border payments company Wise are down close to 20 per cent so far this year.
Incoming Jupiter chief executive Matthew Beesley, who is due to take the reins at the asset manager at the start of October, faces a challenging job.
The group’s assets under management dropped by a fifth in the first half of this year to £48.8bn, while pre-tax profits fell by two-thirds to £18.8mn compared to the same period last year. Shares have fallen more than 60 per cent this year.
The fund group announced 80 potential job cuts on Thursday as part of a wider restructuring in an internal memo sent by Beesley.