FinTech deals landscape and trends

Andrew Macnab UK FinTech Deals lead, PwC United Kingdom

In the first of a series of articles on FinTech deals, Andrew Macnab, FinTech Deals Lead at PwC UK, reviews the FinTech deals landscape and reflects on the trends in the market.

The size and number of FinTech deals in the UK, Europe and globally has continued to grow significantly in recent years, driven by a range of converging market trends that are creating a hugely positive backdrop for investment into the FinTech sector. At the heart of this growth is the pressing need for the deployment of modern technologies across the entire financial services industry.

At PwC, we expect there will be more and bigger deals in the future, presenting a range of opportunities for investors (including private equity, corporates and other investors), as well as FinTechs themselves.

Growth in FinTech deals

Whichever way you look at the industry, the trends suggest an increasing volume and value of FinTech transactions across the UK, Europe and the rest of the world:

  • The number of European FinTech deals increased by 13% per annum between 2012 and 2018 (with similar numbers in H1 2019)
  • In the UK, the increase was 18% per annum between 2012 and 2018 (with similar numbers in H1 2019)
  • Around 10% of these deals had an enterprise value of over £500m, and a further c.25% of deals had an enterprise value of over £50m
  • c.60% of deals between 2012 and 2018 involved corporates on the buyside. The remaining deals involved private equity or other financial sponsors
  • There was also a significant increase in IPO activity among FinTechs, however these only accounted for c.10% of deals

FinTech landscape - ‘FinTech’ is the new name for Financial Technology which has been around for over 50 years

While the term ‘FinTech’ has become ubiquitous with trendy startups who aim to disrupt financial services with the latest technology, the definition in practice is far broader. Existing under a banner that’s been in use for the past ten years are a variety of company types, providing a wide range of products and services. We observe five main categories with increasing levels of maturity and enterprise value:

FinTech Landscape: Enterprise Value vs Maturity

Early stage start-ups

companies which are still refining and testing ideas and preparing for second or third round funding e.g. Cleo, Penta, Synapse, Openfin, etc.

Scale-ups

companies which have established brands and, in some cases, proven economics, and are at later stages of funding e.g. Revolut, TransferWise, Monzo, etc.

Financial technology firms with proven economics

more mature and established companies. There are thousands of businesses globally in this segment e.g. FNZ, eFront, Avaloq, Calypso, etc.

Classic FinTechs

larger and more traditional technology and service providers to the financial services industry (many of these have been around for decades) e.g. Mastercard, Visa, FIS, Fiserv, etc.

Ecosystems with some FinTech activities

large, platform companies which are potentially both buyers of FinTechs and market entrants e.g. Amazon, Google, Facebook, Ant Financial, etc.

FinTech companies broadly position themselves as either technology led or financial services led. Historically, their focus has been on delivering efficiency gains through technology.
In recent years, however, there has been a pivot towards disrupting incumbent financial services providers’ business models.

FinTech Landscape: Driver for Use of Technology vs Heritage

Deal drivers and implications for investors

There are a range of factors which are driving investment and deal activity in the FinTech sector. Most significantly, the market is large and growing, with a range of investment options from mature companies with robust financial profiles to early stage start-ups with significant potential for scaling up.

FinTech market drivers

FinTech opportunities for investors

The wide variety of asset types across different market sectors also provides a wealth of opportunities for investors in FinTech. Most transactions are primarily conducted by either private equity firms, established financial / general technology firms, or established financial services providers:

Private equity firms

FinTech companies, both at later stage of development and established FinTechs, offer private equity investors attractive value creation opportunities. There has been significant interest among PE firms in FinTechs as they provide:

  • Proven and often attractive economics (e.g. higher margin, higher growth, recurring revenue, cash generative)
  • Scalable business models
  • Often a sticky customer base with significant barriers to switching (due to complexity around implementation)
  • Exposure to financial services sector growth drivers / potential with limited regulatory risks
  • Recent notable PE investments include:
    • Transferwise (a fast-growing low-cost online international money transfer service)
    • Starling Bank (a digital bank / neo-bank in the UK)
    • Trak Global (a leading telematics technology vendor)
    • Acturis (one of the top 4 insurance software vendors in the UK)

Established financial and general technology firms

Established financial and general technology firms are attracted by the opportunity to add complementary businesses to broaden their offerings and drive revenue growth, as well as to drive merger cost synergies. There are also usually multiple cross-sell opportunities. Many of these firms buy FinTechs that have a product / service gap in their offerings:

  • Recent notable deals include:
    • Fiserv acquisition of First Data (a US payments processor and merchant services provider)
    • FIS acquisition of Worldpay (a UK payments processor and merchant services provider)
    • Visa acquisition of Earthport (a low-cost international money transfer facilitator)

Established financial services firms

Established financial services firms are typically looking to acquire innovative new businesses which can be hard to develop internally. Spiralling internal development costs can hinder the success of many internal projects:

  • Recent notable deals include:
  • Invesco acquisition of Intelliflo (CRM and workflow management tool for IFAs)
  • Ant Financial acquisition of WorldFirst (a FX and money transfer service in the UK)
  • Santander’s investment in Ebury (a FX and currency services provider for SMEs)

Key 2020 FinTech deals themes

Conclusions and key 2020 FinTech Deal themes

In summary, we believe the trends described will continue to drive opportunities for more volume of deals as well as larger deals in the FinTech space in the next few years.

How PwC’s capabilities can help you secure value beyond the deal

Our market-leading FinTech deals teams brings subject matter expertise across the entire FinTech market. With a diverse range of financial services and technology experts from across Europe, the US and Asia, we’re close to the latest developments and market trends. Moreover, as the FinTech sector grows, we continue to develop our capabilities to support firms across the lifecycle of deals.

We can leverage our knowledge of the FinTech market and our deals expertise to help you identify opportunities to create value across the entire deal lifecycle from strategy, origination and deal execution to post-deal integration. Our deep sector knowledge, gathered from working on hundreds of FinTech deals, coupled with our unrivalled C-suite relationships, mean we can be your trusted FinTech deal partner and provide you with unique insights and opportunities, whether you are an investor, corporate, entrepreneur or other market participant looking to maximise value from the sector.

Contact us

Andrew Macnab

Andrew Macnab

UK FinTech Deals lead, PwC United Kingdom

Tel: +44 (0)7979 600 615

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