Hi Fintech Friends,
Welcome to part two of Q1 Signals. The purpose of Signals is to get you away from the headlines and dig more deeply into the trendlines.
(You can read part one of Q1 Signals here.)
Mergers, acquisitions, and exits in fintech mirrored the euphoric growth in venture financing over the last quarter:
Q3 2020: 83 transactions
Q4 2020: 102 transactions (+23%)
Q1 2021: 111 transactions (+9%)
Fintech investment bankers were busy putting together $49 billion of disclosed deal volume.
Interestingly, while the number of transactions grew from Q4 to Q1, the dollar volume fell precipitously from $174 billion in Q4. This makes more sense when you net out the mega-mergers of S&P Global with IHS Markit ($44B), Nexi with SIA ($24B),and Huntington Bank with TCF ($22B) from Q4 - a combined $90 billion of volume. The largest transaction by far in Q1, for comparison, was Apollo Global Management’s $11 billion merger with Athene, which provides retail retirement investing and annuities.
Transactions in Q1 spanned 19 categories of fintech and financial services. Though financial services represented a lower amount of transactions (40 compared to fintech’s 71), it again represented significantly higher disclosed deal volume ($43 billion compared to fintech’s $6 billion).
Far and away the most popular category of company involved in M&A in Q1 was Investing businesses, which accounted for 22 transactions and $20 billion in volume. The largest mergers and IPOs (Vinci, Ninepoint) from this category can be seen below:
Investing transactions were followed by Banks (12 deals for $14 billion), Payments (11 deals for $4 billion), Wealth Management ($18 deals for $3 billion), and ATM operators (1 deal in this case: NCR’s acquisition of Cardtronics for $2.5 billion.
The top ten M&A and IPO transactions by deal size are below:
As with other quarters, it’s easy to see how larger, older financial services companies comprise the lion’s share of deal dollar volume, if not transaction count. Other than Apollo’s acquisition of Athene, Q1 also featured:
M&T Bank’s acquisition of People’s United for $7.6 billion.
Warburg Pincus’ purchase of a controlling stake in Edelman Financial Engines for $7.3 billion.
BPCE’s tie-up with Natixis for $4.5 billion.
Mastercard’s acquisition of Nets Groups' clearing business for $3.5 billion.
Cardtronics’ acquisition by NCR for $2.5 billion.
GTCR and Reverence Capital’s acquisition of Wells Fargo’s asset management business for $2.1 billion.
Bank of Queensland’s purchase of counterpart ME Bank for $1 billion.
Western Alliance Bancorp’s purchase of AmeriHome for $1 billion.
Of the 10 largest deals, only one (Affirm’s $1.2 billionIPO) came from a fintech company.
There are a few major trends visible in this activity:
Banks continue to circle the wagons, but fintechs are also buying banks now.
There were significant bank mergers in Q1, as pressure on net interest margins and efforts to reduce overhead led in-part to some of the acquisitions above (M&T Bank, BPCE, Bank of Queensland). There were also divestitures, like AIA Group’s purchase of Bank of East Asia's life insurance unit, Computershare’s purchase of Wells Fargo's corporate trust services, and CVC Capital’s acquisition of Greece's National Bank’s insurance unit. But most interesting was that, in Q1, fintechs began buying banks. Lending Club bought Radius Bank to begin offering banking services and SoFi bought Golden Pacific Bancorp for $23 million to use its charter.
There is a lot of consolidation happening in wealth management and investment advisory.
It’s unclear what the driver is that led to an uptick in wealth management M&A (with 18 deals in the last quarter), but there is significant consolidation happening late into a bull market and credit cycle. The most active purchaser by far was Mercer Global Advisors, which acquired Atlanta Financial Associates, Financial Advisory Corporation, McGee Wealth Management, Pinnacle Wealth Solutions, Hart Capital Management, Marrs Wealth Management and Epstein & White Financial. It will be interesting to see whether this trend carries forward into Q2 with the same pace of wealth management consolidation, and whether any fintechs such as the roboadvisors or brokerages begin to buy up investment advisors.
Banking software providers continue to find a healthy market for exits.
This is largely driven by financial services incumbents competing to maintain their edge against fintech upstarts. Examples include the The Luxembourg Stock Exchange’s purchase of AI platform Tetrao, ION Investment Group’s purchase of options execution provider DASH Financial Technologies, and Options Technology’s acquisition of front-office trading provider Fixnetix.
Q1, with 6 IPOs, saw a slight drop in IPO activity from Q4 2020 (9 IPOs):
Buy-now-pay-later lender Affirm raised $1.2 billion in its US IPO.
Patient payments platform Signify Health raised $564 million in its market debut.
Brazilian alternative investment platform Vinci Partners went public on the Nasdaq, raising $250 million.
Canadian alternative investment platform Ninepoint raised $190 million in the IPO of its Bitcoin Trust on the Toronto Stock Exchange.
Home Point Capital raised $94 million in a downsized IPO.
LoanDepot raised $54 million in a downsized IPO.
Lastly, there were three repeat acquirers in Q1:
Mercer Global Advisors made 7 wealth management acquisitions.
Private equity firm TA Associates purchased ETF platform BetaShares and UK wealth management service provider Fairstone Group.
Equifax acquired fraud prevention platform Kount for $640 million and open banking technology provider AccountScore.
