Steve McLaughlin is among the richest, most respected and controversial investment bankers in America. A securities filing published this week puts all those characteristics on display.
McLaughlin is the founder of Financial Technology Partners (or “FT Partners”), which he started as a niche firm almost 25 years ago. The author, when a much younger man living in San Francisco, once inquired with McLaughlin about job at FT Partners at the time:
Betting on fintech when it was in its infancy has paid off for McLaughlin now that the sector is likely worth in the trillions of dollars.
FT Partners, according to an SEC filing this week, will get $39mn in cash for advising on the $2.2bn sale of AvidXchange, a payments software company that floated on Nasdaq in 2021, to the private equity group, TPG.
But that is only part of payday. AvidXchange said in its 10-K for 2021 that an existing engagement letter with FT Partners, which had been signed with the company in 2010, would be replaced with a revised contract just prior to the listing.
FT Partners was now to be entitled to, among other things, 1 per cent of any IPO proceeds and a 1.75 per cent fee if the company was ever sold. So having earned around $60mn in the $1bn raised when AvidXchange was private, it banked another $6.6mn on the $660mn raised in the IPO. The $39mn in the recent TPG sale reflects 1.75 per cent x $2.2bn.
More curiously, the revised 2021 engagement letter said that AvidXchange would also pay $50mn to FT Partners in conjunction with ripping up the old deal and signing the new one. FT Partners at the time immediately took the cash and purchased $50mn in AvidXchange stock. Those shares, 4.1mn of them, were then acquired as a part of the TPG deal for $41mn, the per-share takeover price being somewhat lower than their purchase price.
So the $39mn deal fee + $41mn worth of shares related to the 2021 engagement letter revision = a total effective deal fee of $80mn to FT Partners.
McLaughlin separately had been an investor in AvidXchange, holding 5.5mn shares he had purchased and that will get cashed out in the TPG deal for $55mn.
In this way FT Partners most closely resembles the old-school “merchant banks” that function as both advisers and investors. The controversy is on the advisory part, and just what’s in those engagement letters.
One person familiar with the AvidXchange arrangement said that the $50mn payment to the bank in 2021 was to buy out the company from the previous FT Partners engagement letter, which called for a whopping 5 per cent M&A deal fee. FT Partners declined to comment.
Michael Praeger, AvidXchange’s founder and CEO, is a big fan of McLaughlin. He told FTAV that McLaughlin arrived in 2010 when the company barely had any revenue and ultimately assisted with 16 different deals.
“Along with Steve putting real skin in the game as investor and adviser at a time when it was difficult to attract the other top tier investment banks, he has served as true strategic partner for me in growing our business into the middle market industry leader … he definitely deserves the upside 100 per cent.”
A 2021 Wall Street Journal profile explains the FT Partners playbook. In exchange for providing to emerging fintech companies what it says are valuable connections and advice, and in some instances capital, the firm extracts high fee rates and ironclad contracts that can extend decades. The 2021 AvidXchange engagement letter, for example, lapses at the end of 2059 or when the company is sold.
But, per the merger proxy, let’s note the challenges of having a 5 per cent shareholder also represent the company (and all its shareholders) as an investment banker (emphasis ours).
At the meeting, the Transaction Committee discussed certain relationships and potential issues involving FT Partners and Mr. McLaughlin, including FT Partners’ and Mr. McLaughlin’s long-standing relationship with the Company and Company management, the significant ownership stake in the Company beneficially owned by Mr. McLaughlin, the significant fee that would be payable to FT Partners upon the consummation of a strategic transaction involving the Company, the employment by affiliates of Mr. McLaughlin of a family member of Mr. Praeger’s [AvidXchange CEO] and that the engagement letter between the Company and FT Partners did not provide that FT Partners would render a fairness opinion in connection with a strategic transaction involving the Company…
. . . the Transaction Committee determined to rely on the advice of Barclays going forward with respect to advisability of the transaction, and to discuss FT Partners’ role in the remainder of the sale process at the next meeting of the Board . . . [Barclays earned a fee of $23mn for its work]
. . . On May 6, 2025 [the day the deal was announced], the Board held a special meeting at which the General Counsel of the Company and representatives of Latham and Barclays were present. Members of Company management and representatives of FT Partners did not join the meeting.
As it happens, FT Partners has another (current or former) client in the middle of another big liquidity event. Circle, the stablecoin purveyor, recently sold $1.2bn of stock in an IPO and has seen its market capitalisation race to $45bn. But its float prospectus had an interesting disclosure: a blockbuster lawsuit working its way through federal court pitting FT Partners against Circle.
Circle signed an engagement letter in 2020 with FT Partners, only to attempt to terminate it in 2022, citing contract language that allowed Circle to walk away scot-free if McLaughlin was no longer actively working on the account or if FT Partners had “detrimental” conflict of interest with Circle.
FT Partners has since sued Circle, arguing that Circle feels buyer’s remorse and is, in reality, shirking millions of dollars in deals fees owed on multiple transactions that the company completed after the purported FT Partners termination. Circle in its court papers disputes that the termination was improper. The federal court recently allowed the FT Partners’ breach of contract claims to move forward while dismissing FT Partner’s request for a declaration that the engagement letter remains in effect, describing the separate claims as “duplicative.”
The Information reported last year on a similar fee dispute lawsuit between FT Partners and AlphaSense, where the client, AlphaSense, has sued FT Partners, seeking to escape an FT Partners engagement letter. FT Partners is contesting that lawsuit.
Circle points in its IPO prospectus to contractual language in its engagement letter that says, if the FT Partners contract is ruled valid, the bank might be owed 7 per cent on the $1.2bn in IPO proceeds and it “may also remain obligated to pay significant fees to FT Partners for future capital raises or company sale transactions, including this offering”. That implied $84mn fee would be in excess of what Circle paid its actual IPO underwriters.
FT Partners says in a case court filing (with our bolds):
FT Partners has been a pioneer in offering its clients more varied and flexible fee structures than investment banks typically are willing to.
FT Partners’ clients frequently agree to a long-term engagement agreement and/or a fee structure that recognises the substantial risk that FT Partners is taking by providing that, in the event that the company eventually completes a Company Sale at a valuation far higher than its valuation at the time of entering into the long-term engagement agreement, FT Partners’ fee for the Company Sale will typically approach or even exceed 5-20% of the aggregate consideration or incremental aggregate consideration in the transaction.
Circle understood that to secure FT Partners’ highly sought-after services, it would need to agree to terms that provided FT Partners with significant upside.
Circle’s position is “heads, we win; tails, you lose.” Circle secured FT Partners’ assistance with an ironclad guarantee that FT Partners would be fairly compensated, including that, in the unlikely event that Circle entered into a multi-billion dollar Company Sale, FT Partners would receive a fee of roughly 9%-10% of that amount. But once Circle achieved a massive valuation, it greedily sought to nullify the parties’ arrangement so it would not have to pay fees to FT Partners going forward
Buyers are on the hook for the seller’s M&A fees and typically will reduce the overall price per share paid to shareholders to account for the drag of any M&A fee. AvidXchange re-cut its deal with McLaughlin when it went public to presumably avoid any claims that its board had breached its fiduciary duty to shareholders by agreeing to that previous 5 per cent M&A fee.
FT Partners has also said in court papers that it tried in 2021 to “resolve” the “fee dispute” with Circle, which clearly has not worked so far. That leaves a scenario where a McLaughlin wins in court and is in line for a monster, record-shattering M&A fee: A tenth of Circle’s current $57.8bn market cap comes to nearly $5.8bn.
