Dramatic rise in fintech M&A and funding ramps up pressure on legacy firms: Hampleton Partners
Funding for fintech is rising at a dramatic pace with positive implications for insurtech developments ramping up pressure on legacy firms to compete, research suggests.
The global Fintech M&A Market Report from technology M&A specialist Hampleton Partners, said that three fintech “mega-deals” worth $87 billion in total helped create a “record-breaking” $120 billion in disclosed transaction value for the sector in the first half of 2019.
All three of the top deals were in payments processing: Fidelity National Information Services acquired Worldpay for $43.6 billon; Fiserv acquired First Data for $22 billion and Global Payments acquired Total System Services for $21.2 billion.
The volume of fintech M&A deals hit a three-year high with 198 deals in the first six months of 2019, up from 164 in the second six months of 2018. While global venture capital investment in fintech reached “record-levels” in Q2 2019 with $10.9 billion raised.
Hampleton’s report highlights “a revitalised M&A market” since the slump in the second half of 2018, as well as a general trend for larger deal sizes. It showed that 65 percent of deals were worth more than $100 million in the first half of 2019, compared to only 54 percent in 2018 (disclosed deal values).
Jonathan Simnett, director and fintech specialist at Hampleton Partners, said: “The fintech M&A market is white-hot in Europe and North America. Financial businesses and institutions are increasingly open to adopting large-scale fintech in transaction processing or enterprise financial software, and as the financial services industry re-structures, competition for game-changing assets is increasing.”
Fintech fundraising continues to grow with 818 fundraises in 2019 so far. The report said the predicted annualised figure of 1,636 would set a new annual record, narrowly beating figures recorded in 2017 (1,632) and in 2016 (1,633).
It added that excluding the Ant Financial deal of June 2018, Q2 2019 recorded the most fintech fundraising ever with $10.9 billion raised.
Hampleton Partners said this confirms that, while they seem to be gradually multiplying in number, fintech funding rounds in North America and Europe are becoming larger. However, Asia is not currently sharing the same level of fundraising success, with fundraise count and value stagnating.
Looking at fintech trends, the report said investors and acquirers will tend towards targets that focus on automation via disruptive technology, such as real-time payment processing technology; AI chatbots (expected to save banks $7.3 billion annually by 2023); and mobile banking, as in-person branch visits are set to fall 36 per cent between 2017 and 2021.
Challenger banks like Chime, OakNorth or N26 will also continue to grow, while regtech is on the rise, allowing firms to stay compliant through cloud-based platforms and machine learning.
Blockchain use has also continued to spread through collaborative platforms like Bitpay with Visa, the report said.
Simnett added: “The heat is being applied to fundraising, auguring well for future large-scale fintech exits. Second quarter 2019 proved to be the largest quarter ever for fintech fundraising, with Europe already exceeding its 2018 annual record. As Europe and North America power ahead of the currently moribund Asian fintech fundraising market, we expect this to yield several large-scale fintech M&A transactions in the future.”
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