A good day and a warm welcome to today's virtual roundtable of the CHAPTERS Group AG. We are pleased to welcome the CEO Jan-Hendrik Mohr and Bastian Krieghoff as the Group Executive Financial Technologies. Dear participants, you are about to receive information regarding today's corporate release of the CHAPTERS Group. Following the presentation, you will have the opportunity to ask your question in a Q&A session. With that said, I will hand the floor over to Jan-Hendrik Mohr. Jan, the stage is yours.
Thank you very much, everybody, for joining in, and thank you, Igmar, for giving us the stage here. This is a bit of an unusual setting. It's the first time we do such a format, but it's also a bit of an unusual day. Here you see our segmentation. That's the format that we've used this year for our investor relations presentations, and it's also the format that you will see in our annual report and how we segment the business going forward. Most of you, in the conversations we are having, we would usually focus on the vertical market software part of the group in our public sector and enterprise segments, where our platforms acquire and run small software companies in mission-critical niches. We've scaled that business to eight European countries and have a really bright future in allocating more both in inorganic and organic growth.
A lot of our conversation has been on that. I also know that in all of our conversations, we usually, in the last five minutes of the call, touched upon this one business that we've had in the group for a long time, Fintiba, and we explained a little bit about it. I think what you took away from those conversations is that we own a stake in a real gem of a business, but that has been historically a small part of the story, and the software business has been very dominant. Now, with today's announcement that you've seen in the morning, that picture is changing a small bit, and we want to explain to you what the consequences are and why we are excited about that.
We announced in the morning that we will contribute our stake in Fintiba and Coracle with a business called Expatrio into a new holding company. You might have seen the pie charts up there change a little bit. That means that that segment actually becomes quite a bit bigger and is about a third of our overall revenue at this point. We want to take the time to explain to you why. Why do we think that's a good idea, and what are we doing here? Let me take you on a bit of a journey of how we thought about this segment historically, and a bit of context is needed. In May 2021, we had an opportunity. Bastian approached us, and we were able to acquire a stake in Fintiba in a secondary transaction.
We bought out angel investors of Fintiba and acquired a 21.5% stake at the time. The reason we got interested is that Bastian had a fascinating idea. He wanted to insource the banking and payment function of Fintiba. When you look at the Fintiba business model, it's an online platform where people who need blocked accounts for a visa in Germany can obtain that visa in a very seamless and digital process and get all the financial payments and banking infrastructure provided. Historically, that was done with a banking partner that has been a good partner, but there are a lot of potentials that you can create more customer value if you actually control the banking value chain.
Bastian approached us and said, "Well, I'm looking for someone who takes a stake in our business and who can also help us set up our own bank." At CHAPTERS Group, we are very entrepreneurial. We like these things. We said, "Well, that sounds really interesting, and let's see what we can build here." The journey progresses. We actually end up increasing our investment in Fintiba a bit more over time and start in October 2022 our joint venture project of Frankfurt International Bank. Bastian will touch upon later a little bit more what that is. CHAPTERS actually becomes a joint venture partner in a bank. Two years later, in September of last year, that bank gets a full banking license. In that course, we also end up acquiring the majority stake of Fintiba.
Kind of the story of Fintiba and CHAPTERS Group has been a story of growth, and our engagement towards Fintiba has grown and really based on phenomenal operating performance. When we originally made the investment, the profitability of the business was solid. Fintiba has always made a lot of money. The amount of venture capital Bastian had to raise to scale the business has been embarrassingly low. It's been always a very, very profitable business. Through the increase in interest rates after 2022, the business became very, very profitable. Over time, we used that to increase our ownership. Over time, and with Bastian educating us about the vertical, we helped Fintiba build an ecosystem around their core business. The bank, I touched upon that, made an acquisition of a business called Coracle.
Coracle is a historical competitor of Fintiba and very strong in certain markets. They joined the family in December of last year. Today, the announcement that one of the major competitors, Expatrio, is joining our group. I think what you should take away from this is the kind of time frame and the patience we have in developing this ecosystem and how this pays off over time, because where we are today was clearly not visible when we made our first investment in 2021. Now, where are we today? What are we actually talking about with the new merged group? The numbers you see here are the proforma segment revenues. When we talk about the segment, we talk about the financial technology segment, consistent with what we will report in our annual report.
The chart we show here is essentially a proforma view of the current scope of the group. What we do for the fiscal year 2024, fiscal year 2023, and 2022, we assume that the three companies that are part of the segment today, Coracle, Expatrio, and Fintiba, are part of that group for the entire period to kind of give you a view on what are we looking here, how does this business look like. What you see, obviously, is very strong growth. The sum of the three businesses over the last couple of years has enjoyed very strong growth and is really driven by two factors. On the one hand, the profitability in that market increased due to increasing interest rates. That clearly has been a driver.
Also, the number of students into Germany and the cross-selling opportunities have really played out, and there's been very strong volume growth in these businesses. That's also prevailing in 2025. 2025, obviously, with the transaction announced today, and there's time until closing, and we will need time to integrate, 2025 will most likely look like a bit of a normal year in which the businesses operate almost as on a standalone basis. We are driving some of the strategic initiatives where we want to improve the group. We will use policy deployment, of which Fintiba has been a strong pioneer at CHAPTERS Group, to kind of think about what's the strategic plan to how we want to develop these three businesses.
What we found out in diligence is that there are very substantial synergies that we think we can reap both on the revenue and on the cost side. You really need to think about the three businesses as three identical infrastructures, different size, different complexity, but really doing very much the same thing, but maintaining different marketing and different IT teams and different platforms. This is a real growth story. This is not about cutting costs and creating synergies that way, but the opportunities to build more products and the opportunities to cross-sell with the resources that we have are vast.
We have a pretty clear thesis on how we want to drive the efficiency of the business without necessarily cutting a lot of costs, but really by refocusing the resources and instead of having the three businesses fight each other, make sure that we can serve customers better. We do not disclose the EBITDA of the segment at this point, but what we can share is that all the incremental revenues that are coming in with both a combination and then eventually with the synergies are likely going to be at a significantly higher average margin level than where CHAPTERS Group is at right now. We think there is a kind of strong increment in margin coming out of that initiative.
We feel that this is not a hayfire and like a one-year initiative, but we actually think there is very strong and long-term growth in this industry. Bastian will tell a little bit more about the qualitative drivers here. Now, we want to share a bit more information about what we actually did here in terms of the transaction. I want to be mindful that there are some elements where we are bound by confidentiality, so we cannot talk about everything here, but we share some information that we think is useful for your understanding of the deal structure. First, I want to point you to the right side of the slide. This is a comparison to give you an idea of the scope of the transaction. The two bar charts show you the proforma revenue of the financial technologies segment.
The left bar chart, the EUR 17 million, is the scope of the 2024 revenues of Coracle and Fintiba. Bear in mind, we only acquired Coracle in December, so that number kind of includes the full annual run rate, assuming Coracle was part of the group for the entire year. You see that with the transaction today, that segment, just the sheer scope of that segment, is substantially increasing. What used to be about a little bit more than 10% of the group's revenue is now becoming a more significant part of the group. Again, as I said, the overall incremental margins here and all the growth that you're seeing, it's fair to assume that the incremental margins are higher than the average margins that we see at Fintiba. These are profitable businesses. What we want to build here is sustainable and long-term profitability.
Don't overstretch it, but make a run operation that is able to invest into growth and continue to grow for a very long time. Now, the way we structured the transaction is unique. It's essentially a merger of Fintiba and Expatrio, and we are really proud that the management team of Expatrio, who we got to know quite well over the last two years, will continue to stay and also have a substantial stake in the business. CHAPTERS Group, in the proforma view, will own an increased share of the group. The way we got there is that we used some fixed income financing in that transaction. Specifically, what you see here is the capital stack of the segment post-transaction. Right now, the business has EUR 116 million of net debt. I'm going to walk you through the different components of that.
There is the small cash portion, which is needed to run the operations of the business, included in here. I'm going to walk you through kind of the seniority of the debt. At the very bottom, you see the EUR 18 million of CHAPTERS shareholder loans. That's a financing structure you see a lot within CHAPTERS, where one of our platforms, and I think it's fair to speak about what we're building here as a platform, would get funding from the top co from CHAPTERS Group AG by way of a shareholder loan. We also did this here as part of the transaction. There's an EUR 18 million shareholder loan coming in from CHAPTERS Group. Now, obviously, on a consolidated basis, that's not external debt to us. Right now, this is a view on the segment. To the segment, it is external financing.
We have a very substantial part of the capital stack is mezzanine debt. That debt has very little financial covenants. It's going to be repaid, but it has a lot of flexibility on how we repay it. Essentially, the interest accrues, and we are committed to use a substantial portion of the free cash flow generation of the business to pay down that mezzanine debt with interest. It's not a very strict part of financing. If there is a weaker year in the business, it doesn't get us into too much trouble. Also, if there is a very strong year, we have a lot of flexibility around paying down that mezzanine debt quicker. There's also a layer of senior unsecured financing.
Those are vendor loans provided by sellers where we are paying some of the segment is paying some of the purchase considerations at a later point. There is a layer of senior secured debt coming from a financing partner. That is probably the part of the capital stack that is most similar to how you would normally look at net debt. That part is secured. It has financial covenants. We'll pay that down over the next five years. It is very vanilla type of debt financing. We feel very comfortable with that structure, not only based on the current profitability, but also looking into next year. In particular, reflecting on the flexibility we have with the debt, we feel that it is a level of financial leverage that we can live with, and that is not constraining us too much in terms of flexibility.
At the same time, the interest rate we pay on the debt is slightly above 8% on a blended basis, looking at all the external debt apart from the shareholder loan, which benchmarks well with similar financings, in particular, given the flexibility that we have here. When we go on the next slide, this is what we did from a structural measure. We used to own 55% of Fintiba with management team and one angel investor owning 45%. Now, post the transaction and post all the different steps of the transaction, CHAPTERS Group will own 61.8%, with the remaining 38.2% essentially comprising the management teams of both Fintiba and Expatrio. The way we got there, because we put kind of two similar-sized businesses together, you would assume that the average ownership goes down.
The way we got there is our big driver of that was that we used the debt financing to do a repurchase from, in particular, the Expatrio shareholders, and that increased the ownership of CHAPTERS Group. We also acquired some shares from the Fintiba founders that we structured in the same identical way like we did last year. We assume that, or we expect that those shares will be converted into CHAPTERS shares over time. This really changes the scope of the group. I'm really happy today that we're sitting here today. I mean, we should probably really be wearing CHAPTERS, given that we didn't have much time to pick our clothing today because we spent essentially 24 hours at the notary office and the Fintiba offices. Here we are.
I'm really happy to announce Bastian as our Supervisory Board decided to appoint Bastian to the Group Executive Board, to the Vorstand of CHAPTERS Group AG. That is really reflecting the importance of the financial technology segment here. I think our Supervisory Board clearly sees that Bastian, as the leader of that business, should also have the end-to-end CHAPTERS level of responsibility to lead that business. Now, through both open market purchases over time and then the initial transaction where we acquired a stake and paid with CHAPTERS shares, and now this transaction, Bastian is also a very substantial shareholder of CHAPTERS Group. I think the incentives are really well aligned. I'm really, really happy that Bastian decides to kind of move up to CHAPTERS Group and lead all our efforts in the financial technology segment.
That also means that my responsibility right now, where I kind of split my commercial efforts between the Software Group and the Financial Technology segment, will shift more towards the software side because Bastian essentially is the end-to-end leader for everything financial technology is at CHAPTERS Group. I will lead the Software Group very much together with Mark, our COO, who most of you know. We are going to focus very much on scaling that group. Bastian is focusing on scaling the financial technologies group. Marlene, as you know, is focusing on very much everything else. That continues to be the place. Three people in the executive board going forward with kind of my responsibilities on the software segment together with Mark and then Bastian on Financial Technologies. I have already spoken too much because really what is interesting is what Bastian has to say.
I want to hand over to you to give a perspective on what you see as a market opportunity, what gets you excited about the acquisition that we announced today, and how you imagine the future. I am going to wrap up and we take questions.
Yeah, perfect. Thanks a lot. Hello from my side. Thank you for the great walkthrough to the segment, to the history of Fintiba and the economics of the deal which we signed today. I am really happy to be here and to give you a brief overview. What are we doing in the segment? What are the drivers on the macro side and where we want to improve our client offering in the future to create this organic growth, which Jan mentioned before? I am really honored to be appointed to the Executive Board of CHAPTERS.
Since I founded Fintiba 10 years ago, a lot of things changed. The real change happened since Fintiba and CHAPTERS started working together. Jan just showed the highlights of the last three, four years. It is really amazing what we achieved. Yeah, we founded a bank. Who would have imagined that 10 years ago? It is up and running now. We purchased one of our competitors end of last year, like Jan said. Yeah, now we merged with another one. We now have a really great position in the market to focus on innovation, developing further products for our customers, and yeah, just improve our offering and develop the segment. I'll give you a short overview. We have Fintiba, where you see the logo behind me. We are pretty strong in the area of students.
We started as a provider who offered Blocked Accounts, which is a product which is essential if you want to get a visa to study in Germany. You need a proof of your financial resources. The easiest way is a so-called Blocked Account. It's a pretty special banking product where you need a lot of specific process know-how. It's manageable, but it's complex. In the beginning, our main competitor was Deutsche Bank. They were never able to serve these customers in a proper way. After we entered the market, like three or four years later, they quit the business because they were not able to provide processes in the quality which the customers really like to use. Expatrio and Coracle, they started a bit later than we and had more or less similar offerings.
On, let's say, like a different regulatory approach, one was working with a payment provider. One was working or is working with a non-German bank. We want to set standards in this market in terms of quality and security of the clients and the processes. For doing so, you need a reliable infrastructure, or you can call it also a banking backbone for the group. This is one of the main advantages which we have now in the future and what will help us develop the group and the products. We have a bank in the segment where we can really work together, where we have reliability in the infrastructure, in the processes. This is really something which brings the group to the next level or to another level.
On the other side, a bank is often more than one side of the balance sheet. You have the clients' assets on one side, and then you usually do something on the active side of the balance sheet. There we, Jan and I started talking about early, what can we do there? We found something which is called Export Financing, which is a niche product, a bit like the Blocked Account, where the German government gives you a guarantee for loans which you give out to lenders abroad which buy German machinery. Germany is an export nation. With FIB, or with the group, we want to do finance beyond borders. Our customers at Fintiba, Expatrio, and Coracle are coming to Germany from outside of Europe. With FIB, we help businesses in Germany selling more products abroad.
We help the importers around the world to, yeah, improve their own economic standing. It is a great combination of knowledge for international payment, international KYC, and all that stuff. In total or in sum, we are focusing on high-quality, mission-critical, specialized products. The combination of a market side where we have three brands and a great and stable backend is, yeah, it's a really big advantage. We can use it to increase or improve the offering for our customers a lot. What does the market where we're talking about the deal of today make so interesting? It is a market with a historical growth rate of 6% per year for the last 10 years. This is due to several reasons. In general, in Germany, the promotion of international students is a political will.
All of the last German governments supported international students coming to Germany because in Germany, we have something which is called a shortage in skilled labor workers. One of the best ways to support or provide the German economy the talent they need are international students. From this perspective, the government is investing a lot to improve it. They also help universities to implement more English-taught programs to make it easier for international students. Beside that, on a macro level around the world, a lot of big study destinations around the world are changing politically. You might have heard from countries where student visas get denied or even canceled. Germany is the third biggest market for international students worldwide and the biggest in non-English speaking. The total amount of international students in Germany compared to the U.K. and U.S. is still comparably or relatively small.
If you see a shift from these big markets to Germany, the impact is, yeah, what you see there. Additionally, the German government or the officials do a lot of research, and they just published a data or study which shows that the ROI on invested public funds in international students are really high in Germany. They are really pushing that forward. They put new policies in to make it easier to work beside the studies or to start working in Germany after the graduation. These are all factors, I'm sorry, which make Germany really attractive for international talents. Yeah, we're on a trend which seems to be stable. There are a lot of data showing that the trend in the next years will stay like this. Yeah, I think we're in the right market here and will love to extend that. What are we doing?
I walked you through while I was talking, but we really want to offer amazing tailor-made products which fit the needs of our clients to really help them to have a financial inclusion if they are abroad and reduce the financial discrimination. For non-speaking German customers, it's often pretty hard in Germany. There are banks which don't have an app where you can change the language and stuff like that. This is really not fair. We try to offer products there which are free of discrimination. In the end, we want to offer a long-term financial home in Germany to make sure that the financial products really enable our clients to be successful in Germany and enjoy their life without struggles or big questions regarding finance and banking.
Yeah, we're doing this by offering really high-quality products based on a secure and reliable German infrastructure, or in the end, quality made in Germany. I would love to give you a short overview where the organic growth in the future might come from and how the customer journey looks like. The customer journey is usually a journey of several years. You think about studying or working in Germany. You start to prepare. You learn a language a little bit. You apply for a university. You apply for a visa. You come over here. You start to study. After that, you enter the job market. For a master's student, maybe in a short, or the shortest way, it is maybe two or two and a half years.
If you do a language course before study preparation, a bachelor and a master, this can also be like seven, eight years. One interesting fact is that nearly 50% of international students are still in Germany 10 years after they started studying in Germany, which shows that the students who are coming over here really want to stay here and build up their own life. This is interesting because there is no provider which really offers them the products they need for a stay here. They can go to a German provider which just gives out the standard products for everybody. As an international, you often have specific needs. Maybe even if you want to, or if you plan to stay in Germany in the long term, you might have this idea in the back of your head.
What will happen if I go back to my home country in maybe 20, 30, 40 years? Can I transfer my assets? Is my insurance still available there even if I've gone sick and stuff like that? It is not complicated, but there are specific needs which you can address. At the moment, you see our current core revenues. They are from the Blocked Account, mainly opening fees, monthly fees the customer pays. We also offer health insurances which are pretty complicated if you come to Germany. Then we get insurance commissions. This is the start of the customer journey. In the near future, we will create additional deposit income with a banking license as a first step, which will increase the customer lifetime value significantly.
In the future, we're just implementing a bank account or current checking account, how you name it. This will generate revenues on a long term, hopefully + 10 years with the customer, which leads to a long-term customer duration. At the moment, we're losing the customer after 12-14 months because the Blocked Account is a product which you need for this specific time frame. There is no need to have a Blocked Account after that period of time. We generate a lot of customers. We are well known around the world. They trust us. They start banking with us. After 14 months, we need to say goodbye and, yeah, help yourself. This is pretty sad. We never wanted to do that, but we were not able to do it with our former banking partner to set up a current account.
Now we have the chance. We have implemented it. We're in the testing, and this will generate revenues in the future. If you have a current account as a long-term customer retention product which customers are using day to day, you have a touchpoint often more than once a day, you always have the chance to offer your customer more tailor-made products they need. That can be something like a credit. This can be something like revenues from investment or insurances. More or less everything around finance. This is a really exciting long-term vision and optionality for these businesses, especially if you think about that we now really can focus on product development and what our customer needs after this deal. I'm really excited. I would hand over back to you, Jan. I mean, thank you.
When you look back to 2020 and really even to 2018 and 2019, that's the time when today's CHAPTERS Group came about. I always refer to that as CHAPTERS ground zero. We were trying a lot of different things. Most of them worked. We, over time, kind of developed a feeling for what we like best. The deepest opportunities we saw are in our Software Group and in the Financial Technologies group. Now, a year and a half ago, when we decided to embark on CHAPTERS 1.0, which is really to build the group driven more by a strategic plan followed with policy deployment to make sure we are on track with that plan, it increasingly became clear that we are building two different rocket ships here. We have the software rocket ship, and we had the financial technologies rocket ship.
In the software space, the M&A opportunities are very fragmented and small. It is a bit of a cookie-cutter mechanism of how we do M&A that has scaled really, really well. We have also been able to drive organic growth in the Software Group. If you experienced what we experienced in the last 24 hours, that would not surprise you. Just as a little side anecdote, the way you buy a company in Germany is that you go to a public notary, and that gentleman reads out the contract and kind of signs off the contract. Eight people, huge pile of paper, spend 24 hours at a law firm's office reading through the contract and documenting everything. If you are ever in doubt whether the German public sector needs more digitization, let me tell you, my dark rings under my eyes are evidence for yes.
We are really excited about organic growth potential in the public sector. There's a lot to do and a lot of M&A opportunities acquiring the different businesses both in enterprise and in public sector in Europe. There's also the opportunity within financial technologies. Bastian and I and the board, we've had quite good clarity on how does this look like when it's done. It's a bit harder to discuss with you as investors if the M&A opportunities are less than a handful. The one thing you can start on your own is a regulated balance sheet business. It doesn't come that handy. I'm excited today because today we can kind of openly talk about it and say, "Listen, this is what we were building towards." Look, as we are embarking and scaling CHAPTERS 1.0, here are two big rocket ships.
We are really excited about both for different reasons. Both are growing organically. Both have shown the ability for us to kind of deploy capital in a creative M&A. I think that's important. In both, we win because CHAPTERS is really long-term. We talked about that at length in the Software Group, but in particular here, and the slide Bastian just showed, this really makes sense if you take a 10- or 20-year view. You think about an ecosystem. You think about the ecosystem of students coming into Germany, all the little intersections with exporting like we touched upon. You can really build an ecosystem, an industry standard in an ecosystem. You need time. Private equity would not do it. It makes sense if you have 20 years of time.
Because we're aligned and U.S. shareholders understand what we want to do, I think we had the support and capacity to deploy that strategy. Here we are. I think it's going to be exciting to continue to scale CHAPTERS 1.0. We're going to announce our annual report within the next couple of days. We'll have more information about the three segments. We're also going to share more about the plan and kind of the more substantive financial outlook at our Investor's Day in Hamburg, the day before our annual meeting, where we will give you a little bit more specifics around, in particular, some of the earnings figures and some of the mechanics of how this works with the P&L. We will do that when we see each other in July. Before that, we want to take the opportunity for you to ask questions.
We will answer whatever we can comment on. We are happy to comment on. Thank you for your interest.
Yes, thank you very much for the presentation, Jan and Bastian. We now come to the Q&A session. For a dynamic conversation, we ask you to ask your question personally via the audio track. To do so, please use the raise your hand button, and I will give you the opportunity to speak. If you are not free to speak, you can place your question in our chat box. We have one participant already with a question. Mr. Zenkovich, you should be able to place your question now.
Hi, can you hear me?
Yes, we can.
Great. Hello, Jan and Bastian. Great update. Congrats on the new job, Bastian, and congrats to the team on getting the Fintech structure over the line.
Yeah, first thing, could you briefly walk us through the CHAPTERS Group's current financial position, specifically in terms of debt, shareholder loans extended to platforms, and cash or liquidity at the holding level? I'm just trying to reconcile the current capital structure. The second one, with the Financial Technologies segment being highly profitable and you will be significantly increasing customer lifetime value, should we think of this as a recurring cash engine for CHAPTERS' broader platform growth? Aside from repaying debt, obviously, will this bring changes to your capital allocation, perhaps shareholder returns at some point? Thanks.
On the Capital structure and Financials, the one sad thing with M&A is sometimes you can't time these things the way you like them to be timed. Today, we are a couple of days away from the disclosure of our annual report, and we are—
Yeah, I'm impatient, sorry.
No, no, no problem. Couple of weeks away from when we disclosed our preliminary numbers. I know I have a very happy Executive Board colleague today, but I want my other Executive Board colleague, Marlene, to also be happy. She would not be happy if I talk about anything that will be sent out next week. I want to buy a little bit of patience. If I could draw my own painting here, we would have done this deal next week. Alex, I asked for a couple of days on patience on that live update. On the Capital Allocation front, no. There is absolutely no change to Capital Allocation. We hold a strong view that Capital Allocation needs to do two things. I think it needs to be inherently opportunistic.
At the same time, if you have a strategy that you can invest behind, that's something to look for. For example, in our Software roup, just the opportunity cost of allocating capital at the multiples that we've done historically, and the structural reasons why we can do that are just really good strategic reasons to think about how can we scale investment into that opportunity over time. You need to be inherently opportunistic, right? Cost of capital goes up and down, and you need to be able to flex your deployment speed based on your cost of capital. That will not change in the future. I think the way we look at the financial technologies cash flow is that for the time being, the focus will be on paying down financial liabilities.
We expect that to happen on a reasonably quick timeframe based on the synergy that we expect from that business. We would then review whether there is an additional reinvestment opportunity within that segment or whether the cash is channeled up to CHAPTERS Group and then redeployed here. With that being said, Fintiba is responsible for a couple of VMS acquisitions that we've done because over the years, we've received substantial dividends out of Fintiba. We use that cash really to grow in the VMS Group. I would not be surprised if that's one of the things how this could play out over time. You can always expect us to be incredibly opportunistic. If shareholder returns, for example, by way of a buyback, are a better opportunity than to scale by way of M&A, we will do that.
If it's better to scale M&A and dilute, we will do that. It is all driven by a mindset of improving value per share. That is our North Star.
Okay, great. Maybe a follow-up. You have positioned CHAPTERS as a long-term value creator that contrasts exit-driven models. Is that meaning that a potential IPO or spinout would not be on the table for the new business?
Listen, spending 24 hours with law firms and tax advisors and a notary on structuring, I think our appetite to do a maneuver of that this week is limited. Also, I think two drivers will drive this, right? The first one is strategy, and the other one is corporate finance. If there is a really good strategic reason and/or a really good corporate finance reason, we will always review options like that.
Today, apart from the sheer kind of economic input, Fintiba has been a fantastic member of the group. I touched a bit about policy deployment as a methodology that we use internally. The business that got us there and kind of the pioneer of deploying policy deployment within CHAPTERS was Fintiba. If Fintiba had not been the pioneer that it was and that it is today, some of the success we see in the Software Group would be less likely. That is great. The least thing I want is to lose that. Also, I mean, expect us to be rational. Expect us to look at the opportunities at the time, but also expect us to, in particular, Bastian, on chopping the wood that is on the table here because in terms of integration and platform management, all of that, that is going to keep everyone pretty busy for the foreseeable future.
I'm not sure it's the wisest idea to kind of start a big corporate restructuring process in the very immediate future. Yeah, always expect us to look at this rationally from a shareholder value perspective.
Okay, thanks for the insights.
Thank you for the question. We move on to the next participant. Mr. Knott, you should be able to speak now and place your question.
Hi, if you guys can hear me. Yeah, great. I'd also like to congratulate Bastian on the Board appointment and Jan and CHAPTERS on another great, meaningful acquisition. In simple terms, it would be very helpful if you can help us assess the deal in terms of what CHAPTERS paid. I know you went over some of that, but in return, what shareholders will receive, sort of to get a sense of return on capital on day one.
Of course, maybe if you could give some insight into what you expected to be over the longer term.
Yeah. Again, I need to disappoint you a little bit until the annual report where we have a bit more of the statutory disclosure that we will have to do. You do not have to wait for long, but part of those answers will be answered when we come out with the release. I give you a high-level update here. When you look at the valuation for the entire group and you look at today's profitability or the pro forma 2024 profitability of the merged group, you would see a multiple on EBITDA that is higher than what you expect or know from us in the past.
You would see a multiple that is in the teens instead of the kind of six to seven times that we used to pay. When you think through different scenarios around synergies—and I need to be a little bit vague here given where we are in the process, given some of the confidentiality that we agree from just some of the analysis that will only happen now, but there are bands around how to think about this. I think also the expectation is that within a year or two, the effective multiple will be at or below where we historically acquired companies at. Now, when you look at two important other drivers here, what we got in return is a business that has a volume growth that is quite a bit higher than the average volume growth we see in the Software Group.
We shared that in the past, that kind of volume growth in the Software Group is more in the low to mid-single digits. This is clearly higher here in this segment. I think you could argue—and on top of that comes the cross-selling opportunities and all the rest of it. I think you could make a case that there is an attractiveness to that underlying business quality. I think a second important aspect, the reason or the way we got there happened in a very equity-efficient way. The way we structured the transaction, in particular with the amount of debt and the way we structured the debt, means that this took pretty few resources away from our other investing activities and still got us to that deal, which I think is highly attractive.
We will share a little bit more about that when we come out with the annual report.
Yeah, that's very helpful context and a good overview. I'll obviously wait for the annual report. Just one follow-up. On the initial, the sort of high-level multiples you mentioned, would it be right to say that's for 100% of the business?
Yeah. Yeah, you look kind of at the deal EV, and you look at the pro forma 2024 or even 2025, there's not a huge difference. EBITDA profitability, you would get to the number that I outlined. Then you break down kind of the near-term effects, and you also break down the equity efficiency, and I think you get to a pretty attractive return on the equity that we deployed.
Got it. No, thank you. That's all for me.
Thank you, Akash.
Thank you for the question.
By now, we did not have received any further questions, neither in the chat box or by participants raising their hand. I will wait a few more moments if that's the case. Maybe a follow-up.
Yeah, sorry, I should have asked this before, but it just came to my mind when you mentioned, Jan, the sort of the conversion of the return on capital to return on equity. Is that basically you're saying that this financing has been structured mainly through debt? Yeah. And because it will be repaid over time, the return on equity will be significantly high.
Yeah. I mean, again, I need to be a little bit high-level here, but CHAPTERS used to own 55% of Fintiba. It's fair to assume that the merger with Expatrio, similar scope, similar size, similar valuation.
If you just merged the businesses and did nothing else, our ownership in the combined group would be somewhere, I do not know, between 25% and 30%. What happened is that we did that first and then took external financing in, took vendor loan financing in, and made a repurchase of shares from both Fintiba and Expatrio shareholders, in particular, Expatrio shareholders. The ownership through that repurchase of CHAPTERS Group moved up to 61.8%. The increase in debt, which Fintiba right now has very little, was used essentially to a buyback in the structure. That gets you to the target picture of us owning approximately 62%, but the business also having a level of leverage that it did not have before. To get there, we did have to put in equity, but it was a small percentage relative to the enterprise value of the deal.
That is the amount that is through the share issuance or that Fintiba—
The share issue is that we also use some cash. I think about that as kind of the equity component of the deal. And that's comparatively small versus the debt component.
Understood. Okay. Yeah. Thank you, Jan.
Great. Thanks for the question. And Mr. Zenkovich was raising his hand for a follow-up maybe, so he can just try to get this again if he wants to.
Yeah. It was something in the direction of the annual report, so I think it's tiresome for Jan. But perhaps just to get your mind set, how do you think this will affect the valuation logic? Perhaps maybe more specific, should investors think for the financial services more in banking or more in software multiples here?
I mean, that's your job and not mine.
The banking part is going to be the core P&L of the bank, given that that's just getting ramped up and is going to play a relatively small part of the P&L structure for the foreseeable future. When you say banking and you mean bank balance sheet, bank-type P&L, that's not going to be relevant for the reasonable future. When you say income that is not in recurring revenue stream like the software business, I think the Fintiba business has more kind of transaction interest-related income. Historically, in particular, in some of the equity issuances that we've done, investors ascribed a similar valuation to both businesses because the financial technology business, Fintiba, is a great business. It just has a bit different structural characteristics than software, but it's a beautifully growing, high-cash flow generative business. Time will tell.
It is up to us to increase the transparency, which I think historically, given all the changes at CHAPTERS, has been an issue for readers of financial accounts. You need to actually take a lot of time to kind of dissect what is going on here and what is a good run rate and all of that. This is getting increasingly easy to digest with the group getting simpler. Time will tell, right? I think our job is to focus on the commercial execution of the business and then report on the results in a way that you can form a view. We do not want to manage that too much.
Okay. Thanks. Very helpful.
Thank you. We got another follow-up from Mr. Knotts. You should be able to speak. Great. Thank you.
This might be off-topic, and Jan, if it is, then no need to cover it. But I saw the acquisition of also this post on Finfox, which was in digital wealth management. How do we assess that in terms of these three buckets that you say, public sector, enterprise, and financial technology?
Yeah, it's a great question. The financial technology segment is the payments and fintech business around Fintiba, Expatrio, and Coracle. The Finfox acquisition, a transaction we really like, is something we would currently put in the enterprise segment. It's a business that is in Mark's reporting line. It's a fantastic business that we acquired in kind of unique off-market circumstances. We really like the business. Now, I think what you are thinking also occurred to us because there are kind of objective parallels between that service offering and what Fintiba wants to build.
Our bank is using a core banking system. You can also buy core banking systems and possibly run them better. All these things are we will handle them the way we have always handled things at CHAPTERS, which is to be opportunistic and then see if we can use some momentum and build a sound strategy out of it. For the time being, think about the FinFox business as a beautiful addition to the VMS Group run by our VMS leader. A cool cousin in the group when it comes to deploying wealth management solutions at some point for Fintiba, I think it's great to have that. It's going to take some time until that becomes a fully fledged thought-out strategy. You never know. The two deals happened completely independent of each other.
We learned during the deal that might have looked differently, but it was completely different decentralized decision-making. Yeah, two cousins.
Got it. Yeah. Understood. Thank you for taking my questions.
Thank you, Akash.
Thank you. Another follow-up. Mr. Zenkovich, you should be able.
Yeah. Thanks. Sorry. Just one. What to think about your product expansion? Will you rather choose to create your own solutions, or will you integrate external solutions either via acquisition or even partnerships maybe?
You mean regarding the Fintiba, Coracle, and Expatrio business, right?
Sure. Yes.
We'll decide this from case to case. And there's also a chance that it changes over time. We have really good experiences with starting with a partner for a product. We also did it with banking.
In the beginning, we had a banking partner, and we developed it to a critical scale where it was worth to set up your own infrastructure. We have a critical size in insurance that we really have high cross-sale ratios. For the time being, I would say we're not as big or not big enough to really fill an infrastructure of an owned insurance. That would be another game. I would not say that we would never do it in the future. The circumstances need to be the right one. In my opinion, we do it in an iterative approach. We launch small tests, see if the customers really want or need this product. If we see the demand, develop it from there step by step.
Usually, it's a faster, much cheaper, and lower-risk way to do it with a partner first. For SIM cards, in the beginning, you can just send out SIM cards branded from another person. The next step, you can brand your own SIM card. They now have Trade Republic, Trade ZIM, or I don't know how they call it, but they have a SIM card. Maybe there is an Expatrio or Fintiba ZIM in the future. I don't think that we will do infrastructure for an own mobile network.
That's costly.
Yeah. No, we do it, like Jan said, in an opportunistic way. Yeah. If we try it with a partner and we don't see the demand, why should we put resources and capital in products our customers don't want to have? That would not be really efficient.
The answer is a bit of both, if this helps you.
No, it's great. Thanks. That's all from me. I wish you a great evening in Frankfurt. Thanks a lot.
Thank you. No further questions have been received in the meantime. I'll wait a few more moments. No questions anymore. We therefore come to the end of today's roundtable. Thank you for your participation, your interest, and your questions. Should any further questions at a later date arise, please do not hesitate to contact the Investor Relations of CHAPTERS Group. I would also like to take the opportunity to thank you, Jan and Bastian, for the presentation and for answering the questions. I wish you all a pleasant day and would like to hand over to you again, Jan or Bastian, for some final remarks.
Just going to say thank you.
Thank you for your interest. When we started six years ago, I don't think anyone would have been a very lonely investor call. I think we're growing and explaining what we do. Thank you very much for your interest, and talk to you very soon. Thanks a lot.