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M&A in FinTech remains stable as gravity returns to valuations

It has been a conflicting week in the M&A market and the broader FinTech investment scene.

UK FinTech investment fell to $9.6 billion in H1 2022, down from $27.8 billion in the same period the previous year, according to a report from KPMG.

The UK is not alone in seeing a slowdown in FinTech investment, with the Americas and EMEA regions both seeing total investment and deal volume slide.

Total global FinTech funding across M&A, PE and VC reached $107.8 billion across 2,980 deals in H1 2022. Payments continued to attract the most funding among FinTech subsectors, accounting for $43.6 billion in investment compared to the $60.3 billion seen during all of 2021.

However, despite the headline numbers and a few headline deals going south

The latest Hampleton Partners’ Fintech M&A Report, reveals that global Fintech M&A rose sharply in the H1 2022 with 591 recorded deals, defying the broader M&A slowdown, but validating that FinTech was massively overpriced (see Klarna) and that there is still plenty of money in the market for the correct price and multiple.

The report shows a 46% increase on H1 2021 numbers (406 FinTech deals), and a massive 70% increase on H1 2019 pre-pandemic figures (348 FinTech deals).

Meanwhile, valuations are falling: H1 2022 saw the median revenue multiple at 3.1x – down from 3.7x seen in the past two years. The trailing 30-month median EBITDA multiple came in at 14.2x.

“FinTech is proving to be a very attractive target for financial and strategic dealmakers, defying the broader global M&A slowdown,” says Miro Parizek, founder and principal partner, Hampleton Partners.

As for the impact of any potential recession, there is one major difference between now and the previous real recession of 2008. This year, deployable private capital, including buyout, VC, growth and real estate, hit its highest level in history at $3.6 trillion – three times the figure in 2008.

The availability of capital is driving buyers and investors to increase their acquisitions at a time when their pockets are full and high-growth FinTech companies are being sold at all-time affordable prices. Any potential recession won’t dampen Fintech M&A as it did in 2008.”

New technologies driving Fintech M&A

The Crypto & Blockchain segment experienced a significant jump in the number of deals in the past 12 months, with a total of 107 transactions recorded, a 75% growth year over year.

As blockchain technology enables monetisation in the metaverse, companies are piling in to create digital assets. In February, investment firm Republic Realm paid a record $4.3 million for land in Sandbox, currently the largest metaverse platform.

In May 2022, US-based Descrypto Holdings acquired OpenLocker, a provider of an online NFT trading portal & marketplace for $11 million.

Open Banking APIs are expected to transform the market, following the introduction of European PSD2 regulation, requiring banks to offer APIs so that customer data can integrate more effectively with third-party services. Open Banking features are expected to have 64 million users by 2024, a five-fold increase relative to 2020.

In May 2022, Yapily acquired finAPI, a provider of Open Banking, data intelligence, Know Your Customer (KYC) and payment SaaS worldwide. Yapily has focused its efforts on official API integrations covering thousands of banks, consolidating its position in Germany and Europe.

Embedded finance provided by companies such as Stripe, Clearpay and Clear Bank, are on the rise. They embed payment and credit products in checkout seamlessly to satisfy customers’ needs. The global market for embedded finance is estimated to reach $7.2 trillion by 2030.

Healthy future for Fintech M&A

“Many FinTech companies raised significant investment capital recently. Some will grow and mature to become serial acquirers in their niches. Many other FinTechs will be sellers in what continues to be an attractive M&A market,” continues Parizek.

“As increasing numbers of private FinTech companies run out of money needed to fuel and maintain their operations, their options will be to raise capital from venture capital firms; sell to private equity or strategic acquirers; or entirely shut down business operations. These options make a sale appear attractive.

At the same time, public companies with massive capital and PE with large amounts of dry powder, well financed late-stage high-growth private companies, and traditional financial services companies looking to remain relevant, are on the lookout for good assets in the sector.

These two sides of the equation are bound to increase overall M&A activity in the Fintech sector.”


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