From a niche sub-sector to an economic powerhouse, Fintech is an industry that changes as much as it innovates.
With a flurry of M&A activity, it’s a real inflection point for Fintech at the moment and the market is likely to look very different in just a few months.
Here’s why that might not be a bad thing and sometimes less really is more.
Who can resist a deal?
Faced with global economic instability and unpredictability, maintaining market valuations has been tricky over the past year with the S&P Kensho Future Payments Index down 19% in January.
The upside of low valuations is that VCs looking for a bargain and firms who’ve been toying with the idea of growth by acquisition are being tempted by bargain prices.
InsurTech M&A exits alone reached a record high last year, up 40%.
This year, there’s already a host of high-profile new unions on the table. From Deel acquiring Capbase to giants like American Express snapping up Nipendo, low valuations are driving market consolidation and some headline-grabbing new partnerships.
A rocky economic picture has made investment harder to come by, with Fintech funding dropping 46% from 2021 to 2022.
When investment is harder to come by, mergers and acquisitions can be a way to instantly expand your team and product offerings. Take Numerix’s recent acquisition of FINCAD for example.
As well as the in-house team, when firms merge, they access each other’s backers. By acquiring GoHenry, for example, Acorn also gain the equity and expertise of Nexi, Citi Ventures, Revaia, Muse Capital and Edison Partners.
A piggyback audience
Firms that merge are able to instantly access a whole new audience of potential customers. And they’re not starting from scratch.
Approaching prospects through a company that they already know and trust means firms are able to piggyback on their new M&A partner’s brand awareness and values, establishing trust more quickly and accelerating the sales cycle.
This is incredibly valuable for tech businesses, such as buy-now-pay-later, that require scale to demonstrate their full value and potential.
Skipping the learning curve
With budgets tight and investors edgy about returns, acquisition can be a powerful way to expand businesses whilst minimising risk. By buying an established company, you’re able to instantly enter a new market or sector, with a team on the ground that knows how to make it work.
By investing in Nippendo, Amex instantly upped their presence in the B2B payments market. BlackRock’s minority stake in Human Interest allows them to test out the SMB 401(k) sector. Acquiring Pixpay last year allowed GoHenry to operate in France and Spain, in turn setting the stage for its acquisition by Acorn this year.
Market consolidation is sometimes seen as a loss – a contraction, when it can actually be a catalyst for expansion.
More to come
The economic volatility that tempted buyers is slowing, but that won’t spell the end of M&A activity.
Fluctuating valuations and markets can slow down the final stages of M&A negotiations. With more stability, we can expect to see deals that have been on the table finalised over the next few months.
Building a team
Joining forces with another organisation takes careful resource planning. Though there can be some initial redundancies where there’s an overlap of skills and resources, longer-term growth opportunities need the right leadership and sales talent to realise a partnership’s true value.
We’ve been helping the biggest industry names plan and build their teams for almost two decades. As the only Fintech sales recruitment specialists, reach out to our team for advice on shaping your sales organisation or filling critical new leadership roles.