Three years after completing the purchase of Linx (Linx S.A.), StoneCo Ltd. (NasdaqGS:STNE) is putting the asset up for sale. Banks Morgan Stanley (NYSE:MS) and JPMorgan Chase & Co. (NYSE:JPM) were recently mandated to seek buyers for the asset, as reported on September 13, 2024 by Neofeed and confirmed by INSIGHT.

Contrary to what the market assumes, however, Totvs (TOTVS S.A. (BOVESPA:TOTS3)) is not the only one in the running. The software company, which competed with Stone for the acquisition in 2020, has signaled its intention to buy -- but at a valuation much lower than what André Street's company thinks is fair. When asked recently during an earnings call, Totvs Chief Executive Officer Dennis Herszkowicz -- who previously chaired Linx -- said he would be interested in the asset.

Stone's thesis, at least initially, is to focus on players interested in consolidating the business management software market focused on specific verticals in Latin America. Private equity funds GIC (GIC Private Limited) and Advent (Advent International, L.P.) are engaged in preliminary talks, according to three sources heard by the report. A strategic player, which already works with consolidation in these verticals outside Brazil, is also in the running.

Abroad, companies such as Constellation and Ropers operate in a similar market to Linx and are traded at a price-to-earnings ratio of around 20 to 30 times. Stone paid R$6.7 billion for Linx in 2020, based on the thesis that there would be a large synergy to be extracted in the cross-sell between software and financial services. The purchase was approved in parallel with the crisis that hit Stone with the explosion of defaults and costs in the credit vertical, which had accelerated in a short period of time.

In an exclusive interview given to INSIGHT earlier this week, Stone Chief Executive Officer Pedro Zinner had already highlighted the challenges in integrating Linx and that the success of the company, with a more mature profile, depended on inorganic movements to foster growth.