How Jack Ma Can Turn British Coal Into an Asian Gem

(Bloomberg Opinion) -- Jack Ma has found a way to turbocharge the benefits that Ant Financial, the Chinese payments giant he controls, can derive from the global ambitions of Alibaba Group Holdings Ltd., his e-commerce behemoth.

Ant, which was spun out of Alibaba in 2014 and is best known for its Alipay service, has agreed to acquire London-based WorldFirst. The little-known international transfers specialist has technology which could serve as an important foreign beachhead for the two Chinese firms.

This is not Ma's first attempt to build out his fintech footprint abroad. He was forced to abandon an attempted $1.2 billion acquisition of Moneygram International Inc. last year after the deal was blocked by the Committee on Foreign Investment in the U.S. The WorldFirst purchase would only be subject to similar scrutiny in the U.K. if it were it a bank. Since it's not, it's a more straightforward opportunity to get a foothold outside Ant's home region.

If you've never heard of WorldFirst, that might also explain its appeal as an acquisition target. It doesn't have the name recognition of other British fintech darlings such as TransferWise Ltd., Monzo Bank Ltd or Starling Bank Ltd.

Which also means it likely comes more cheaply. Ant, which dominates electronic payments in China with Alipay, was discussing paying about $700 million for WorldFirst, the Financial Times reported in December. Adyen NV, another payments company, albeit with a different business, trades at a staggering 121 times predicted earnings. If WorldFirst is getting a similar premium, that would imply it generates just $6 million in net profit. Given its scale – WorldFirst says it has 600 employees and 400,000 customers – such low profitability would be surprising, which suggests that Ant got a far better deal.

I suspect the British company doesn't quite have the aura of its peers because it has failed to keep technological pace with newer firms. But one strength in particular explains its appeal to Ant: its provision of multicurrency accounts to merchants selling their wares through Amazon.com Inc.'s marketplace or Shopify Inc. That offering lets vendors collect all of their international revenue in one account, without having to worry about negotiating transfer fees or delays. Reducing those impediments makes it easier to sell goods across borders, which in turn brings more business to the marketplaces.

Global expansion is a strategic priority for Alibaba as it seeks to drive its gross merchandise value to $1 trillion by March 2020. Efforts outside Asia have so far focused on AliExpress, a marketplace which lets largely Chinese merchants sell their wares abroad. You can see how WorldFirst's expertise could help Ant benefit from that growth, positioning it as an intermediary to allow Chinese manufacturers to collect foreign sales more easily.

Having raised $14 billion last year at a $150 billion valuation, the cost of buying WorldFirst is a drop in the ocean for Ant.

But for Jack Ma, it could be a crucial building block for his growth plans. World first, indeed.

--With assistance from Tim Culpan.

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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