Fintech disputes have led TabaPay to abandon its purchase of bankrupt Synapse. – NextUnicorn
In a significant shift in the fintech landscape, TabaPay has officially withdrawn its intent to acquire the assets of the financially troubled Synapse, a banking-as-a-service startup. This decision, confirmed through multiple sources including TechCrunch and statements directly from the involved companies, highlights a complex web of relationships and contractual disagreements, primarily involving another key player, Evolve Bank & Trust.
Key Points of the Dispute
- TabaPay Withdrawal: The instant payments company has terminated its agreement to purchase Synapse, citing unmet conditions.
- Synapse’s Challenges: Facing bankruptcy, Synapse alleges complications involving its banking partner, Evolve, which they claim failed to meet crucial financial obligations.
- Evolve’s Response: Evolve Bank & Trust denies involvement in the conditions causing the deal’s collapse and asserts it has fulfilled its own financial commitments.
- Mercury’s Position: Mercury has dismissed Synapse’s accusations as baseless, maintaining that all financial transitions and customer funds are properly accounted.
Chronology of a Failed Acquisition The roots of this acquisition’s failure stretch back to the initial announcement on April 22, when both Synapse and TabaPay suggested that a merger was pending bankruptcy court approval, with a surprisingly low purchase price of $9.7 million compared to the $50 million Synapse had raised in venture funding. However, the deal faced immediate hurdles, outlined in detailed communications and court statements:
- Bankruptcy Court Declaration: Synapse’s legal team revealed during a bankruptcy court session last Thursday that the planned acquisition would not proceed.
- Official Confirmation: By Thursday afternoon, a TabaPay spokesperson had confirmed to TechCrunch that the company had issued a “termination notice of the purchase agreement” that morning due to failure in meeting the deal’s closure conditions.
- Evolve’s Alleged Non-compliance: Synapse’s CEO, Sankaet Pathak, asserts that the deal could still be viable if Evolve Bank & Trust fulfilled specific funding obligations for ‘For Benefit Of’ (FBO) accounts, a claim Evolve disputes.
Detailed Breakdown of the FBO Account Issue FBO accounts, crucial for managing third-party funds, lie at the heart of the disagreement. Pathak claims that despite assurances, Evolve failed to fund these accounts adequately, a necessary condition for completing the TabaPay acquisition. Evolve, however, maintains that it was not responsible for the deal’s conditions, although it had a separate settlement agreement with Synapse requiring fund provision, which it claims to have satisfied.
Mercury’s Involvement and Dispute The saga also involves Mercury, a business banking startup and another banking partner to Synapse. Following a breakdown in their working relationship with Synapse, Mercury and Evolve decided to directly collaborate, sidelining Synapse. Pathak’s statements in a Medium post suggest that this move was detrimental to Synapse’s operational and financial health, particularly when Mercury allegedly withdrew $49.6 million more than was due from Synapse-affiliated accounts. Mercury, for its part, claims that the transition was seamless and denies any financial mismanagement.
Impact and Future Implications This aborted acquisition not only affects the immediate parties but also casts a shadow over their reputational and operational capacities. It raises questions about the robustness of contractual agreements and the responsibilities of banking partners in facilitating or derailing significant financial transactions in the tech industry.
Table: Financial and Operational Milestones in Synapse’s History
| Year | Event |
|---|---|
| 2014 | Founding of Synapse |
| 2017 | Peak venture capital raised ($50M) |
| 2022 | First layoffs announced (18% of workforce) |
| 2023 | Additional layoffs (40% of workforce) |
| 2024 | Filed for Chapter 11 bankruptcy |
Moving Forward As the dust settles on this failed deal, the focus for Synapse remains on navigating its bankruptcy proceedings and seeking other potential rescuers or strategic directions. For TabaPay, this might mean reevaluating its acquisition strategies, particularly how it engages with banking partners in future deals. Meanwhile, the tech and financial sectors will likely watch closely how Evolve and Mercury manage the fallout and maintain their business operations amidst public scrutiny and legal challenges.
