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How do you hide €1.9bn in ‘missing cash’ that doesn’t exist? 

Wirecard’s now in-custody chief Markus Braun had some ideas. In a last-ditch effort that would have concealed the fallen German payment group’s infamous fraud, he enlisted US management consulting firm McKinsey & Co in November 2019 to carry out his boldest scheme yet: a takeover of Deutsche Bank.

Introducing, Project Panther.

As the FT’s Olaf Storbeck explains in his definitive guide to Wirecard’s collapse, at the height of the chaos circling what was storied to be “Germany’s PayPal”, Braun, pictured above, orchestrated the eleventh-hour plot to hide about €1.9bn missing from its accounts. 

The scheme’s code name evokes the 1960s classic film The Pink Panther, in which the hopelessly incompetent Inspector Jacques Clouseau hunts an evasive diamond.

But in Braun’s case, coupling with Deutsche Bank could have meant hiding Wirecard’s “missing” funds from investigators in plain sight.

Let’s rewind for a second. Between Braun’s arrest, the breathtaking escape of its chief operating officer Jan Marsalek, and the mysterious death of a key Wirecard business partner in the Philippines, the purported site of the fabricated missing funds, there’s been a lot of noise around the constantly developing Wirecard saga.

Let us not forget the bank analysts, regulators, auditors, and investors (here’s looking at you, SoftBank) who supported the payment group until the end, despite the FT’s reporting about allegations of fraud, forgery and opaque business links.

Wirecard: from stock market star to scandal

As a refresher, here’s the key timeline of events:

  • OCT 15 2019 FT publishes evidence that Wirecard fraudulently inflates sales and profits 

  • OCT 21 Wirecard mandates KPMG to carry out a special audit into allegations reported by the FT 

  • JAN 10 2020 Wulf Matthias resigns as Wirecard chairman. Thomas Eichelmann appointed in his place

  • MAR 12 KPMG report delayed until April 22; publication of Wirecard’s 2019 full-year results moved to April 30 

  • APR 28 KPMG report published after the publication of full-year results are again moved to June 4, then postponed again to June 18 

  • JUN 18 Publication of full-year results cancelled after EY informs Wirecard that documents confirming €1.9bn in cash are “spurious”, based on an email from BPI, a bank in the Philippines

  • JUN 19 Markus Braun, chief executive resigns. James Freis, chief compliance officer — who began his job earlier than planned on Jun 18 — appointed new chief executive

  • JUN 22 Braun is arrested and released on €5m bail one day later 

  • JUN 25 Wirecard AG files for insolvency

So why, in the midst of the crisis that led to Wirecard’s insolvency, would Braun want to join forces with an institution as high-profile as Deutsche?

A marriage of Germany’s largest bank and what was hyped to become the next PayPal could result in a combined stock valuation of nearly €50bn, the McKinsey report promised. 

While the German bank sat on €1.4tn in assets, it was worth a mere €14bn on the stock market, at the time, within reach for Wirecard. Furthermore, Deutsche’s brand power added that certain je ne sais quoi Wirecard needed to solidify its place on the financial pedestal: from scrappy fintech start-up to Germany’s most valuable company.

Oh, and there was something else: a chance for Wirecard to conceal its colossal €1.9bn fraud from ever seeing the light of day, forever lost in the folds of Deutsche’s cavernous balance sheet.

Ultimately, Wirecard never made it to the negotiating table. The company needed KPMG’s stamp of approval on its accounting, which never arrived.

The debacle led to increased scrutiny on the auditing industry as a whole, with PwC chairman Bob Moritz pledging to review its fraud detection methods to “ensure the relevance of the profession”.

If DD’s has learnt one thing on Wirecard’s wild ride, it’s that the story probably doesn’t end here. You can access all the reporting under the FT section Inside Wirecard and Alphaville’s House of Wirecard series.

Aveva raises the bar for dealmaking in the UK

Aveva — the palindromic UK tech stalwart — is unlikely to have come to the attention of M&A watchers too often. 

Risk averse and operating in markets a million miles removed from the buzz of consumer technology, the software company — whose products are used to build chemical factories, ships and oil rigs — has long been seen as more prey than predator. 

It’s docile reputation was particularly enforced after it forged a merger with Schneider Electric’s industrial software assets three years ago, with the French company retaining a majority stake in the listed business. 

And yet Aveva has continued to thrive. It has quietly entered the FTSE 100, overtaking deal-hungry Micro Focus in the process. Now it has landed US software group OSIsoft, a family-owned “prize jewel” asset, in a $5bn deal that could propel it to even bigger deals. 

It is one of the largest takeovers ever engineered by a UK technology company. On the selling side, SoftBank, which had bought a 45 per cent stake in the Bay Area business for just under $1bn, made a nice profit from one of the lesser known assets in its Vision Fund. 

According to DD sources, the deal orchestrated by Deep Nishar generated about $1.4bn for SoftBank’s tech fund. (Side note: after a string of bad investments it seems that the fortunes of the Vision Fund may be finally turning — more soon on this). 

Aveva, slow and steady as it may be, has to prove it can make the deal work. Micro Focus used to enjoy a reputation for low-risk, predictable returns until it bit off more than it could chew with a $8.8bn merger with Hewlett-Packard’s software business 2016. The integration didn’t pan out and Micro Focus has struggled ever since. 

Aveva argues OSIsoft is a perfect cultural fit but there are few synergies on show. Ambition should be applauded in Silicon Fen, the name for the tech cluster around Cambridge, England, that is more prone to selling out than bulking up. Now Aveva needs to prove it can make the bigger deals work. 

No small fry: Ant Group readies for a gargantuan IPO

China’s mobile payments king Ant Group is sticking close to home as it announced its blockbuster public offering via a dual offering in Hong Kong and Shanghai.

The listing, which could raise $30bn, is poised to become one of the biggest in history.

An IPO in China’s home markets was always the most likely outcome for the group, and its financial prospectus makes clear that with the “deterioration” in the US-China relationship, that is even more the case.

People close to Ant stressed that the decision to list in Shanghai and Hong Kong was also partly driven by the desire of the company to stay close to its customer base in China, which it hopes will also become its new investor class. 

Foreign control over financial groups in China has always been a touchy issue. When co-founder Jack Ma, pictured above, expropriated the payments business from Alibaba in 2011, he blamed the move on the onerous regulations prohibiting foreign ownership. Yahoo and SoftBank, two of Alibaba’s largest shareholders, were not pleased.

Today, Ma controls 50.5 per cent of Ant’s voting rights. Alibaba has a 33 per cent stake.

The company earned $3bn in net profit in the first half of the year. It has more than 1bn annual users and handled $17tn of transactions in China in the past year. Visa’s payment volume, in contrast, stood at $8.8tn.

Job moves

  • Credit Suisse has appointed Jeb Slowik and Nishan Srinivasan as global co-heads of its leveraged finance origination and restructuring arm.

  • Suzanne Donohoe was promoted to KKR’s first global head of strategic growth. She previously worked as global head of the group’s client and partner group, and is succeeded by Eric Mogelof.

Smart reads

Party like it’s 1999 Silicon Valley has become reminiscent of the dotcom bubble days, popping champagne and filing IPOs as a global pandemic only adds to the festivities for many social distancing-friendly start-ups. (The Economist)

The other big short A group of hedge fund investors including Carl Icahn profited handsomely by betting on the demise of shopping malls. Their success evokes the infamous shorting of the housing market ahead of the 2008 financial crisis. (NYT)

The no short Mall shorters aside, bold bets against US stocks are overall on the decline as short positions reach their lowest levels in more than a decade. (FT)

News round-up

PwC pledges to review fraud detection after Wirecard scandal shakes industry (FT)

JPMorgan to pay hefty premium to fully own China funds venture (FT)

Wirecard chief and 730 staff cut as administrator takes charge (FT)

Nasdaq files with SEC for IPO alternative to raise funds (Reuters)

Cloud data firm Snowflake files for IPO showing revenue growth (BBG)

Norway oil fund chief drama has exposed weaknesses in country’s model (FT)

Pimco to liquidate currency fund after soured emerging market bets (FT)

Software developer tools company JFrog adds to tech IPO rush (BBG)

Napster sold for a song to UK virtual events company (FT)

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Francesca Friday in New York and Miles Kruppa in San Francisco. Please send feedback to due.diligence@ft.com

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