XP: Dual Track Financing Alternatives

XP, an investment platform, was on the verge of defining whether to do an IPO or selling off a majority stake to Itaú Unibanco, Brazil´s largest financial conglomerate. Under the leadership of Guilherme Benchimol, XP´s co-founder and CEO, XP had risen to become the largest independent investment platform in Brazil in 2017, reshaping the country’s financial investment landscape by marketing itself as a “financial supermarket.” The company offered digital seamless investment alternatives at low fees, pioneering a model leveraged across a wide network of independent financial advisors and disrupting a market dominated by large incumbent banks. By late 2016, XP raked in $71 million in net income, boasting over 340,000 clients and $20 billion in assets under custody. In turn, Itaú recorded $415 billion in total assets and net profits above $6.7 billion in 2016, serving over 55 million clients. Benchimol believed the game was just starting: Brazil presented an enormous market opportunity to offer more financial services to millions of new investment clients, but future growth would require additional funding. By the end of 2016, Brazil´s stock market began to show signs of recovery after a two-year performance slump, enticing XP to go public. Yet, Martin Escobari—an XP board member and partner at General Atlantic, the firm that owned 49% of the company by then—felt XP should explore the possibility of finding a potential buyer for XP, shortlisting Itaú among candidates.  Although Benchimol openly criticized Brazil´s top banks and their treatment of clients, he realized Itaú´s privileged market position could provide XP with more credibility and, ultimately, more clients.  Did it make sense to sell XP to Brazil´s biggest bank? Or should XP go public?