Payment processing company Nuvei saw its shares on the Toronto Stock Exchange (TSX) and Nasdaq fall rapidly today as a short-seller report accused the company of covering up a pattern of business failures, lack of organic growth, and “a web of relationships with individuals connected to major Ponzi Schemes and alleged fraudulent activities.”
The report came from Spruce Point Capital Management, a New York-based investment management firm that focuses on forensic research and short-selling. It questioned the background of both current and former Nuvei executives, including CEO Philip Fayer, and Nuvei’s recent acquisitions.
UPDATE 09/12/2021: Nuvei published a response to Spruce Point’s report later on December 8 stating that the company remains confident in achieving its set out growth targets, and calling out the short seller firm for its allegations.
“Nuvei believes the recent report issued by a short seller is intentionally misleading and draws inaccurate conclusions, innuendo and character attacks on key executives, among numerous other issues. The personal attacks on Nuvei executives made by the short seller appear to have been made to distract from the Company’s achievements and progress,” Nuvei stated.
As the report came out, Nuvei stock fell as much as 55 percent in early Wednesday trading, and at the time of writing the stock has dropped close to 40 percent and sits at $73.95 CAD on the TSX. This follows an all-time high for Nuvei of around $170 to $180 in mid-September.
Spruce Point wrote that Nuvei “commands a premium valuation to financial technology peers” that is 15 and 34 times higher than its estimated 2022 sales and adjusted earnings. “We believe it should trade at a discount to incorporate our documented concerns … we see 40% – 60% downside risk,” the report stated.
The short-seller is, notably, the same firm that took aim at Lightspeed earlier this year, alleging the Montréal company had inflated key metrics and wasn’t performing as well as it claimed. The attack caused Lightspeed’s share price to drop by as much as 13.7 percent.
In its second-quarter 2022 fiscal year results that followed, Lightspeed reported an increase of 193 percent year-over-year, a record high revenue for the company while it saw an adjusted EBITDA loss of $8.7 million USD.
Same as it did in Lightspeed, Spruce Point has a short position in Nuvei. The firm stands to gain from its short-selling report and allegations regarding Nuvei. In response to questions about how large its position in Nuvei is, a spokesperson for Spruce Point told BetaKit, “U.S. securities laws restrict Spruce Point from discussing anything about its fund and there are no laws requiring short sellers to disclose the size of their short positions.”
Founded by Chairman and CEO Fayer in 2003, Nuvei offers payment solutions to retail merchants and tech and distribution companies. The company’s clients span Canada, the United States, Europe, Latin America, and the Asia-Pacific region. Nuvei went public on the TSX in September 2020, raising $833 million USD in an initial public offering that was regarded as the largest tech offering in TSX history.
The Montréal tech company became dually listed in October when it began trading on the Nasdaq.
In the third quarter of 2021, Nuvei reported a sizeable increase in revenue, pulling in $183.9 million, which represented a 96 percent year-over-year increase.
The Nuvei and Lightspeed short-selling reports follow a string of less than positive IPOs for Canadian tech companies, pointing to a tough market for companies looking to go public. Hootsuite is one of the latest among that group, and in recent weeks had been deciding whether 2021 or 2022 was the best time for its to make it market debut. This came as sources that BetaKit spoke with indicated “the window has closed” for new Canadian tech IPOs this year.