Hi Fintech Friends,
Welcome to part two of Signals. The point of Signals is to get you away from the headlines and dig more deeply into the trendlines.
While venture financings saw a 13% jump in number of rounds but a -77% drop in their total value between Q3 and Q4 of 2020, M&A and exits were all up and to the right, as bankers rushed to get deals done before the end of the year.
There were 102 M&A and IPO events in Q4 2020 in the fintech and financial services space (excluding SPACs, which will be covered in the next Signals). This was a sharp 23% jump up from the 83 transactions in Q3 2020 - an expected jump as companies look to close transactions by the end of their fiscal years.
More impressively, these events represented over $174 billion in disclosed deal volume, a 228% increase from Q3’s $53 billion! (46 transactions had disclosed financial terms; 56 were undisclosed).
These transactions spanned 22 categories of fintech and financial services, in which Payments (as with venture funding) accounted for the highest number of transactions at 20 (25 if you count PoS), but Bank transactions represented the highest purchase volume at a combined $49 billion.
The next-highest volume category was Financial Data at $44.17 billion, but that was driven almost exclusively by S&P Global’s $44 billion acquisition of IHS Markit; without that acquisition, Payments ($34 billion) would be the next-most lucrative financial services M&A sector in Q4, demonstrating how much Bank M&A is currently taking place.
If you break apart fintech from financial services deals, fintech made up the greater number of transactions (79 fintech vs. 23 financial services), but financial services made up by far the greater value of transactions ($106 billion vs. $68 billion). This is expected, given financial services transactions normally involved older, larger legacy institutions such as PNC Bank, BBVA US, Huntington Bank, TCF, Euronext, and Borsa Italiana.
The top ten M&A and exit transactions by deal size are below:
You can see that financial services are overrepresented in larger transactions (split evenly 5/5 between FinServ and fintech). A few of the notable deals were,
Huntington Bank’s massive acquisition of its rival TCF to create the US’ 27th-largest bank (which itself shows how concentrated bank assets are at the top),
Davidson Kempner’s purchase of struggling Greek Alpha Bank’s $12.8 billion loan portfolio,
PNC Bank’s acquisition of BBVA’s US division (a deal meant to allow the Spanish bank to buy out its domestic rival Banco Sabadell),
Kazakhstani fintech super-app and neobank Kaspi’s gigantic IPO on the London Stock Exchange, and
Euronext’s acquisition of Italian equities exchange Borsa Italiana.
There are a few major trends visible in this activity:
1. Bank M&A is going up as legacy consumer financial institutions look to find ways to grow market share, lower their average cost of capital by acquiring more deposits, and streamline their operational expenses by reducing redundancies. We can expect to see this wave of consolidation to lead to more branch closures, more workforce layoffs, and more press around increasing digitization strategies. These bank mergers will continue to represent high ticket sizes (First Citizens’ acquisition of CIT was only the 14th-highest on the Q4 list, despite being worth $2.2 billion).
2. Financial data are becoming more valuable, as are the public exchanges and utilities that warehouse those data. Euronext’s acquisition of Borsa Italiana to consolidate two of Europe’s largest exchanges is only the latest example in a long list that includes S&P’s $44 billion purchase of IHS Markit and the London Stock Exchange’s $27 billion acquisition of financial data provider Refinitiv, and InterContinental Exchange’s $11 billion buyout of EllieMae. Secular growth in financial services and the rise of API-based data providers will both continue to drive an increasing appetite for financial data, which will become a lucrative revenue stream with software-type margins for providers traditionally accustomed to deriving their revenue from facilitating transactions.
3. As usual, payments companies make up the largest amount of deal activity (20 deals), as more transactions happen online and more companies look to sit in the lucrative flow of those transactions. Whether gateways (Bluestone Payments, Paystack, Pure NZ) or mobile payments (YellowPepper) or card processing (TransNational Payments, Solupay, Carta Worldwide) or the creation of new platforms to offset competition (eftpos, BPAY Group and New Payments Platform Australia), payments consolidation activity is exploding. One payment acceptance area in particular that saw a lot of activity in Q4 was in point-of-sale companies:
Worldline bought France’s Ingenico for $8.6 billion as it looks to expand into continental Europe as a payment provider.
Lightspeed bought point of sale solutions Upserve for $403 million and Shopkeep for an undisclosed amount to expand into the US.
GoDaddy boughtPoynt for $365 million - though its ambitions are still unclear, it may be to enable omnichannel checkout that combines both online and in-store purchases (in which case we can expect GoDaddy to launch an online checkout solution).
Nets Group boughtCCV Schweiz, a Swiss payments terminal provider.
4. Banking as a service made the M&A list last quarter with browser company Opera’s acquisition of Pocosys. BaaS is a newer product category, focused on enabling client companies to provide their own financial services without needing to rely on partnership with a financial services provider (and differentiated from Banking Services Providers, which provide FIs with specific functions like AML/KYC or financial crime-fighting). Most BaaS companies like Moov, Unit, or Treasury Prime are still relatively new, but I wouldn’t be surprised to see this category of embedded banking grow in M&A activity in 2021.
Q4 also saw an uptick in fintech IPOs (9) from Q3 (6):
Kaspi went public on the London Stock Exchange for $6.5 billion.
Chinese lender Lufax underperformed in its US IPO, but still managed to raise $2.4 billion.
Scandinavian digital banking platform Nordnet raised $1.1 billion in its IPO on the Nasdaq Stockholm (currency rates have since fluctuated.)
US lender Upstart raised $180 million in a surprisingly successful IPO.
Japanese robadvisor Wealthnavi saw similar success: a 68% jump in its trading price on the Tokyo Stock Exchange that raised $173 million.
Lottery provider NeoGames raised$94 million in an IPO on the Nasdaq Global Market.
UK currency-focused fintech Mode had amicro £7.5 million IPO in London.
Mortgage provider Guild IPO’ed.
And neobank Douugh had itsIPO on the Australian Stock Exchange (the company is based in Australia but operates in the US).
And finally, there were three repeat acquirers in Q4:
Italian payments behemoth Nexi bought both Nets for $9.2 billion to expand into the Nordics and SIA for $24 billion to expand into continental Europe.
European payments giant Worldline acquired point of sale provider Ingenico for $8.6 billion as well as a controlling stake in Australian bank ANZ for $378 million.
Canadian restaurant payments platform Lightspeed POS acquired point of sale rival Upserve for $403 million as well as point of sale provider ShopKeep to enter the US.
