By Owen Poindexter · June 29, 2020
Wex secured $400 million in funding from an affiliate of Warburg Pincus as the Maine-based financial technology services company awaits a September trial over its attempt to back out of a $1.7 billion purchase of transportation companies eNett and Optal.
The deal includes $310 million in convertible notes and $90 million in equity. Warburg Pincus, a New York-based global private equity firm with over $54 billion in assets under management, will own approximately 4.7% of Wex’s outstanding common stock on completion of the deal after factoring in the value of the convertible notes. Wex also negotiated changes to its credit agreement, which included increasing its maximum consolidated leverage ratio to 5.5x through the end of the year.
“We are pleased to further fortify our balance sheet during the current uncertain operating environment while reaffirming our relationship with Warburg Pincus, who has demonstrated their strong commitment to the future growth of Wex,” said Melissa Smith, Wex’s chairwoman and chief executive officer.
With travel hit hard by the pandemic, Wex has been struggling in recent months, laying off 2% of its workforce and furloughing another 3% in April. In May, Wex attempted to pull the plug on an agreement to buy payment provider eNett and virtual card issuer Optal for a combined $1.7 billion from Elliott Management’s rival transportation technology provider Travelport, a move that triggered a lawsuit from Travelport attempting to force Wex to complete the sale.
The fate of that deal remains unclear. Earlier this month, Travelport won an expedited trial in a London court, which should allow for a decision on whether Wex can back out of the deal before a financing commitment expires Oct. 27.
Travelport backers Elliott Management and Siris have been bolstering the company’s financial standing with additional investments and shuttling about $1 billion in intellectual property into a Travelport subsidiary where it is out of reach of lenders, a move that also is subject to a legal dispute.
Prior to the economic downturn, Wex, which also offers financial technology for health care companies, was on an upward trajectory, having doubled its revenue from $854 million in 2015 to $1.7 billion in 2019. Now, the company could be forced to carry out a purchase for two companies that appear much less desirable when the deal was agreed to in January.
Warburg Pincus has been invested in Wex since 2016, when Wex bought payment company Electronic Funds Source from the private equity firm for approximately $1.1 billion and 4 million Wex shares. James Neary, a managing director at Warburg Pincus, joined Wex’s board of directors at that time. Warburg Pincus sold most of these shares in 2017, reducing its stake in Wex to under 1% of the company.