Equiteq reviewed M&A and investment trends in the increasingly disrupted financial technologies and services industry.
A broad range of technological innovations have transformed the financial services industry in the last five years. Alternative lending platforms, cryptocurrencies, robo-advisers and AI technology as well as other solutions have changed the landscape of the market. According to PwC’s Financial Services Technology 2020 and Beyond, 81% of banking CEOs are concerned about the speed of technological change. Traditional financial services players view the rise of fintech and challenger banks as a threat to their market share.
Expansion of Financial Technology and Services
From banking to payments, fintech has managed to dramatically transform the financial services industry. Customer empowerment initiatives continue to be an overarching theme in the market giving customers access to previously restricted assets and services, while emerging innovations have allowed financial institutions to access new data sets. The urge for companies to implement new fintech technologies has spread globally – adoption in 2019 grew almost four times more than in 2015, according to EY’s Global FinTech Adoption Index 2019.
Through the innovation of financial technology and services, Equiteq has acknowledged the following outcomes:
Financial Software M&A Valuation Metrics
Fintech firms have significantly expanded in the recent cycle, coupled with robust deal volumes and capital raises that drive strong valuation metrics for transactions in the space. Median capital invested per transaction has risen sharply in just the last two years, increasing to nearly 600%. Equiteq expects this trend to persist with financial technologies and services companies continuing to pursue M&A as a means to ensure they have the newest capabilities to accelerate growth, expand their offerings and support their client needs.
Buyer and Market Feedback
Equiteq has significant experience in the financial technology space and has amassed a wealth of insights from buyers and experts as part of M&A processes:
- FinTech Offerings: “FinTech” is a key buzzword in the financial services M&A world as buyers look to move up the value chain by adding automated,
- Financial Services Insights: Capabilities centered around deriving actionable insights from vast sources of data to underpin financial decisions represent a key driver
in M&A activity in the sector
- Scale: Buyers have indicated that they are looking for acquisitions that “move the needle” to make an impact and justify the opportunity cost of other targets
- Recurring Revenue Component: Buyers, especially financial sponsors, have indicated that they are interested in businesses that have a portion of their revenue coming from offerings that are recurring in nature
- Diversified Client Base with Significant Access / Spend: Significant revenues coming from one or a small group of clients can be perceived as a risk factor for some buyers; Blue-chip clients and access to significant consulting spend within them are a value driver, especially when they can unlock latent value within a buyer’s organization
If you would like to enquire about receiving a full copy of our Financial Technologies and Services Report, or if you would like to discuss your current strategic objectives as a business owner or acquisition strategy as an acquirer, please get in touch.