Quetzal’s 100% Call Option On TAP

While it may be the case that investors on the London market apparently need no explanation of announcements / deals in the resources space, it can take a while for them to appreciate the rationale and the value of anything tech related. This would appear to be the case as far as tech investor Quetzal, which to all intents and purposes pulled off a humdinger of a deal when it announced it had signed a call option to acquire 100% of TAP Global, for a minimum valuation for TAP Global of £26.5m. This was something of a giant killing deal, for several reasons. Perhaps the obvious one is that if QTZ owns 100% of TAP, its valuation should migrate from its current £7m to at least the £26.5m minimum of its investee company over the near term. This is especially the case given how hot the fintech / banking platform space is at the moment, with rumours of sector counterpart, banking app Ziglu, currently being sold for many multiples of this figure.

Gibraltar

TAP Global is a Gibraltar based fiat and crypto trading exchange platform, and has been busy putting QTZ’s December £1.5m cash investment in it, via a convertible loan. The fruits of those labours look set to materialise in the very short term. 

TAP Global has a lot to recommend it in a space which is notoriously un-regulated and prone to every kind of fraudulent activity there is.  It is regulated by the Gibraltar Financial Services Commission which carries out frequent inspections and audits on the company and requires constant updating of various trading metrics and capital adequacy positions within TAP.

TAP Corporate

This level of regulation, as opposed to ‘registration’ which exists in the UK under the FCA umbrella, is giving increasing numbers of corporate clients the confidence to sign up for accounts as they dip their toes in the pool of accepting payments in crypto assets. The recent “Soft Launch” of the Tap Corporate product is delivering revenues in line or above the anticipated value.  The corporate solution is aimed at providing companies access to both traditional banking facilities in GBP and EUR as well as access to the multiple crypto assets Tap can Trade and store.  The additional security provided by holding all user assets in the insured cold storage custody is also attracting corporates that want to HODL for now in a secure way.  

80,000 Retail Customers

Retail customer numbers continue to climb – reaching just shy of 80,000 by the end of March 2022.  The standard metric for this space is that each customer is worth £1,000, something which applies to the aforementioned Ziglu. The read across for TAP is a valuation of £80m.

On a practical level, most seem attracted by the relatively low fees that TAP charges in addition to the USP of the platform which is the AI powered middleware that finds the best matched trade for customers across multiple exchanges without the need for those customers to search across exchanges themselves. So the tech is cutting edge.

Earn Wallet

TAP recently announced that its ‘earn wallet’ or in layman’s terms, interest bearing accounts for both fiat currency via Stable Coins and Traditional Crypto asset deposits was close to a public launch.  Extensive trialling has taken place in smart contract transactions ready for launch across the platform.  These trials have, according to TAP, proved remarkably successful and once the final regulatory approvals have been achieved will lead, they say, to two distinct growth vectors.  Firstly, the offering of interest for fiat and crypto balances will attract the sophisticated traders in their droves.  Secondly, the interest differential between what TAP earns on the Smart Contracts and what it pays out in ‘earn’ to customers will provide a significant additional revenue stream to the business.  It’s the multiplier effect in action. 

Reverse Takeover

At the end of last year TAP received a cash injection in the form of a £1.5m Convertible Loan Note from Quetzal Capital to complete a single Reverse Takeover Transaction.  That loan came with an option for QTZ to acquire TAP Global and it would not take the brains of a Matrix analyst to work out that they would not have committed nearly 50% of their cash assets if they did not think the RTO was on the cards.  And given the time since the initial investment one would be expecting more news on that soon.

Global Locations

Other newsflow that we are likely to see is the opening up of the platform in more global locations.  An Australian subsidiary is already incorporated and the last time I spoke to Dave Carr, CEO of TAP, he has his eye on LATAM and other parts of Asia.  TAP has already signed up an analyst partner in the US, which is a notoriously difficult region for European based operators to establish themselves in the crypto space. 

TAP Versus Ziglu

So what does it mean for retail investors?  Quetzal looks to be cheap given the comparator valuations in similar companies and the position it has engineered in TAP.  Getting back to the Ziglu example, remember the not so long ago fundraise achieved by Ziglu on Seedrs. Over £7m achieved at an £85m pre-money valuation and into a private company with very little liquidity outlets for those investors.  TAP looks to be achieving similar user numbers (remember that minimum £26.5m valuation) but in a better regulated environment and that seems to be the key differentiator.  Once TAP releases its earn wallet capability then this could definitely see fireworks and with scalable platforms and a team that’s delivered numerous eMoney projects over the years this could be an incredibly exciting journey. It is no wonder that serial investor Chris Akers has recently topped up his already significant stake in Quetzal.