Global | Publication | april 2024
2023 was a challenging year for global FinTech M&A and investment. Intense macroeconomic and geopolitical headwinds led to investor caution. The result was that the sector experienced the lowest levels of M&A and investment activity since 2017, both in terms of deal value and volume.
FinTech M&A and investment activity is expected to increase during the course of 2024 as global macroeconomic conditions improve, the IPO market opens and investors and companies adjust to the new, more restrained, valuation environment.
Prevailing macroeconomic conditions at the start of 2023 were challenging, characterised by rising interest rates, rampant inflation, slowing economic growth, the ongoing Russia-Ukraine conflict, subdued valuations, the shift in focus from growth to profitability, and restrained venture capital activity. It was anticipated that this might drive a number of FinTechs towards exit strategies as companies reduced cash burn, leading to an increase in M&A activity and a degree of industry consolidation with established technology companies and other large corporates with strong balance sheets being well placed to make acquisitions, potentially at more attractive valuations than had been available in recent years. In the context of fundraising, on the other hand, the macroeconomic climate was expected to dampen spending, with investors predicted to remain cautious and disciplined in their approach to allocation of capital after the economic slowdown experienced throughout 2022 that continued in 2023.
In practice, H1 of 2023 proved to be a tough period for the global FinTech market in terms of both M&A, especially after the record levels of activity in 2021 and 2022, and investment activity, with the unexpected collapse of several US banks in the spring adding to the existing challenges. M&A and investment activity dropped from $63.2 billion across 2,885 deals in H2 2022 to $52.4 billion across 2,153 deals in H1 2023. 1
Investment activity remained subdued until the year end, with annual equity funding (at $39.2bn) and deal volume slipping to the lowest levels since 2017 – there was also a shift towards early-stage funding rounds, especially in the US (where seed/angel and series A rounds accounted for 70% of all US deals).2
In terms of the geographic spread of deals, although the EMEA and APAC regions saw a reduction in the value of FinTech M&A and investment transactions, the Americas experienced an increase, from $28.9 billion in H2 2022 to $36.1 billion in H1 2023.3 This increase continued into H2 2023, and, in terms of deal volume, overall, the US drew 41% of FinTech investment deals in 2023 – its highest share since 2016.4 The top three highest value M&A exits in Q4 2023 also went to US FinTechs.5 The APAC region did however contribute to half the new unicorns of Q4 2023, and this marked the first time since 2019 that more FinTech unicorns were born in the APAC region, than in the US in any given quarter.6
In terms of M&A and investment activity within the sub-sectors, while crypto funding declined, the payments sub-sector remained resilient across both H1 and H2 2023, attracting the largest share by value of FinTech activity in H1 2023.7 The payments sub-sector also secured the top investment deal in Q4 2023 with Metropolis (a parking management and payment platform) raising over $1 billion.8 Banking and WealthTech sub-sectors on the other hand saw the largest drops in investment between 2022 and 2023.9
FinTech activity in the Americas region was comparatively strong in 2023.10 The US attracted all the larger transactions and accounted for just over two-thirds of all FinTech M&A and investment in the region during H1 2023.11 However, there was a decrease in the total number of M&A and investment deals in the Americas over this period.12 This could be attributed to several factors, including selective investing and a discrepancy between seller and buyer valuations. The second half of the year was more promising and, in Q4 2023, the US accounted for the greatest volume of investment activity globally (281 deals with an aggregate value of $3.7bn), although it was overtaken by Europe in terms of M&A exit volume.13 That being said, the three highest value M&A deals in Q4 2023 (including TMX’s acquisition of VettaFi for $1.1 billion) all involved US-based firms.14
The largest M&A transaction of 2023 overall was Nasdaq’s $10.5 billion acquisition of Adenza. This was an example of the consolidation trend seen throughout the period, especially in the Capital Markets, Wealth Management and payments sub-sectors.15 Other noteworthy strategic deals in these sub-sectors in the US included Cetera’s acquisition of Avantax, a tech-enabled tax-focused wealth management firm, for $1.2 billion, and Rapyd’s purchase of PayU GPO, a division of PayU’s global payment organisation Prosus, for $610 million. This sub-sector consolidation activity did, however,slow in Q4 2023.16
Most of the largest transactions in the Americas during the first half of the year involved the payments sub-sector, including Thomas Bravo’s $8 billion buyout of Coupa, Global Payments’ $4 billion acquisition of EVO payments, and Stripe’s $6.8 billion Series I raise. In Q3, private equity buyouts were a key highlight in this sector, with GTCR’s $18.5 billion majority stake acquisition in Worldpay from FIS leading the way.17 In 2023, enterprise FinTech companies, which are companies that focus on serving businesses, banks and other financial institutions, were the primary target of acquirors in terms of both M&A value and number of deals.18
InsurTech attracted investor attention, with the potential to modernise the technology of traditional insurance companies being a key attraction. The largest global InsurTech M&A transaction in H1 2023 was Vista Equity Partners’ $2.6 billion buyout of Duck Creek Technologies.19 The attention on InsurTech continued into Q3 2023, with two of the quarter’s largest capital raises being InsurTech deals. This included Prudential and Warburg Pincus’ $1 billion investment in Prismic, a newly launched tech-focused reinsurance company.20
While there was some FinTech activity in the crypto sub-sector in 2023, such as the $155 million acquisition of Apex Crypto in the US, many investors retrenched, causing a marked decline in crypto fundraising in the US. Factors contributing to this retrenchment included the aforementioned macroeconomic conditions as well as the Securities and Exchange Commission’s heightened scrutiny of crypto companies.
The EMEA region struggled to perform well amidst a difficult macroeconomic climate. Despite the strength of certain sectors like RegTech (where AI and automation are aiding financial institutions with KYC and AML obligations), it saw a substantial decline in FinTech M&A and investment in H1 2023.
The UK secured the lion’s share of Fintech M&A and investment in EMEA during the first half of the year, accounting for five of the top 10 deals by value in the region. This included the only deal exceeding $1 billion – Veritas Capital’s $3.1 billion acquisition of UK-based energy insights platform company, Wood Mackenzie.
Europe surpassed the US in M&A deal volume in Q4 2023. One of the biggest FinTech M&A transactions in 2023 was German stock exchange operator Deutsche Börse’s acquisition of Danish investment management software company, SimCorp, for €3.9 billion in Q4 2023.21 Although Europe experienced one of the largest drops in funding in 2023,22 the UK also continued to perform well into Q4 2023, reaching $1.4 billion more in investment than in the previous three quarters combined.23 The largest UK FinTech financing deal during Q4 2023 was secured by point of sale technology provider, Sumup, which raised $307 million in their latest funding round.24
In H1 2023, the APAC region experienced its lowest levels of M&A and investment activity in nearly a decade and, by year end, the region saw M&A and investment activity fall more than 75%.25 China secured the region’s largest deal in H1 2023, with consumer finance services company, Chongqing Ant Consumer Finance, raising $1.5 billion. The second largest deal in H1 2023 was a $45 million raise by instalment financing company, OH Credit, while other deals in the broader region were considerably smaller. This trend continued into Q3 2023 with Singapore attracting the largest transaction through Aviva’s agreement to sell a minority stake in Singapore-based insurance marketplace company, Singlife, to Sumitomo Life Insurance Company for $625 million, but with other deals in the wider region being significantly smaller.26
For the H2 2023 period more generally, VC deals accounted for the largest deals in the region, with Micro Connect being one of the largest. Micro Connect, a new unicorn of Q3 which is building a blockchain-enabled exchange licensed in Macau and uses blockchain technology and innovative finance to bring together micro and small businesses in the Chinese mainland with global investors,27 secured $458 million in Series C Financing.28 The levels of investments did however drop in Q4, likely a result of a stalled exit environment, with IPO markets in China and Hong Kong (SAR) experiencing a particularly quiet period.29
In Q3, the Banking and Lending Tech sub-sector secured a significant portion of the region’s M&A and investment activity, coming second only to the payments sector. Of particular note was the Indian conglomerate, Reliance Industries’, conversion of its FinTech division, Jio Financial Services, into a publicly traded entity with an estimated value of around $20 billion.30
Although crypto performed poorly globally, it attracted a lot of attention in the APAC region, particularly in H2 2023 following the finalisation of Singapore’s regulatory framework for stable coins and the introduction of new rules for its Digital Payment Token providers (to better ensure the safeguarding of customer assets). Indeed, Singapore attracted the largest Blockchain / crypto investment in H2 2023, with Amber Group having secured $300 million Series C investment.31 The APAC region was also home to four out of the eight FinTech companies that reached unicorn status in Q4 2023 (including Employment Hero in Australia, which was last valued at $1.4 billion).
The FinTech sector is poised for continued expansion in the coming years, with the global market forecast to reach a market value of $644.6 billion in 2029 from $209.7 in 2024,32 spurred by technological advancements and innovation.33 Factors including the increasing adoption of digital payments, the popularity of mobile banking, and the widespread use of smartphones and the internet, particularly in regions where such services were previously lacking, are expected to drive this growth.34 Among other sectors, the payments space is likely to see increased levels of M&A activity in 2024, particularly given the ongoing consolidation at the local, regional, and global levels. This consolidation will likely not be limited to the payments space, so we expect specialised investors to also find distressed asset opportunities in the broader FinTech universe. Consolidation between FinTechs is also expected to increase, as those that have been able to successfully raise take advantage of an enhanced capital position and expand acquisitions, particularly where other FinTechs are undervalue or struggling with their cash run rate. Banks and other financial institutions are predicted to remain active buyers to align with both offensive and defensive plays across financial innovation and expansion of their own product and service offerings. It is also worth noting that asset tokenisation is gaining ground beyond the crypto industry and the increasing levels of regulation around the globe will give additional comfort for investors to embark upon M&A activities. In addition, the focus on generative AI may drive acquisitions as more developed companies acquire more early-stage companies.
Although raising capital is expected to continue to prove challenging in 2024, investor sentiment should improve, with interest rates anticipated to begin to decline, and the valuation expectation of investors in respect of a company and those of the company themselves may start to converge. There will be continued focus on small minority investments and early-stage Seed and Series A funding rounds, which have maintained higher levels than later-stage rounds. We expect seed and early-stage funding rounds to increase in volume over 2024. There is less certainty, however, in relation to larger growth and later stage investments. Investors are expected to remain cautious about participating in large late stage funding, particularly those involving companies whose last funding rounds took place in 2021 and early 2022 (i.e., when valuations were at their highest) or that conducted a down round.35
An uptick in FinTech M&A in 2024 is likely given how depressed activity levels were in 2023. There will be a number of drivers for this. First, business performance and investor confidence should improve as global macroeconomic conditions ease, and this decrease in uncertainty will lead to additional M&A activity. Secondly, many parties will be keen to transact given the dearth of deals last year; this should lead to new assets coming to market and more competition for those assets as incumbents expand product offerings and enter new market areas. Perhaps most importantly, parties appear to be adjusting to the new, more restrained valuation environment which should help to close the valuation gap between buyers and sellers. While this is unlikely to be sufficient to return us to peak-2021 activity levels, with a fair wind it may be enough to return us to pre-pandemic M&A activity levels.
All in all, these predictions suggest that 2024 is placed to be a stronger year for the FinTech industry, both in terms of investment and M&A activity.
Footnotes:
1 The $63.2 billion deal value for H2 2022 being made up of M&A activity ($32.7 billion), venture capital funding activity ($28.4 billion) and PE growth activity ($2.1 billion) and the $52.4 billion deal value for H1 2023 made up of M&A activity ($24 billion) venture capital funding activity ($27.3 billion) and PE growth activity ($1.1 billion).
2 State of Fintech, Global, 2023 recap by CB Insights.
3 The $28.9 billion deal value for H2 2022 being made up of M&A activity ($14.3 billon), VC funding activity ($13.6 billion) and PE growth activity ($1 billion) and the $36.1 billion deal value for H1 2023 being made up on M&A activity ($19.3 billion), VC funding activity ($16 billion) and PE growth activity ($768 million).
4 State of Fintech, Global, 2023 recap by CB Insights.
5Ibid.
6 Ibid.
7 The payments sub-sector attracted $16.2 billion in M&A activity, VC funding activity and PE growth activity combined across 243 deals in H1 2023, whereas the blockchain / cryptocurrency sub-sector attracted $4.4 billion in M&A activity, VC funding activity and PE growth activity combined across 536 deals.
8 State of Fintech, Global, 2023 recap by CB Insights.
9 Banking raised $2.2 billion in 2023 compared to $7.8 billion in 2022 and the WealthTech raised $3.5 billion in 2023 compared to $8.9 billion in 2022. State of Fintech, Global, 2023 recap by CB Insights.
10 The Americas attracted $36 billion in M&A activity, VC funding activity and PE growth activity combined in H1 2023, compared to $28.9 billion in M&A activity, VC funding activity and PE growth activity combined in H2 2022.
11 Amassing $34.9 billion.
12 The Americas attracted 1,011 deals in H1 2023, compared to 1,323 in H2 2022.
13 See State of Fintech, Global, 2023 recap by CB Insights.
14 Ibid. The other two deals were (1) the acquisition of Corvus Insurance by Travelers for $435 million (in insurance) and (2) WEX’s acquisition of Payzer (financial software provider) for $261 million.
15 2023 Annual Fintech Market Update by Royal Park Partners.
16 State of Fintech, Global, 2023 recap by CB Insights.
17 Q3 2023 Quarterly FinTech Insights, Global Financing and M&A Statistics by FT Partners Research.
18 See Financial Fusion: Fintech’s M&A Landscape Unveiled by PitchBook.
19 Pulse of FinTech H1’23, Global analysis on fintech funding by KPMG.
20 Ibid.
21 10 biggest FinTech Mergers & Acquisitions of 2023 by IBS Intelligence.
22 Europe funding fell 64% to $6.5 billion. See State of Fintech, Global, 2023 recap by CB Insights.
23 UK FinTech investment in Q4 2023 reaches $1.4bn more than previous three quarters combined by Fintech Global.
24 2023 Annual Fintech Market Update by Royal Park Partners.
25 Pulse of Fintech H2’23, Global analysis on fintech funding by KPMG.
26 2023 Annual Fintech Market Update by Royal Park Partners.
27 State of Fintech, Global, Q3 2023 by CB Insights.
28Q3 2023 Quarterly FinTech Insights, Global Financing and M&A Statistics by FT Partners Research.
29 Pulse of Fintech H2’23, Global analysis on fintech funding by KPMG.
30 Q3 2023 Quarterly FinTech Insights, Global Financing and M&A Statistics by FT Partners Research.
31 Pulse of Fintech H2’23, Global analysis on fintech funding by KPMG.
32 The compound annual growth rate is expected to grow 25.18% from 2024 to 2029. See Fintech Market Size, Share, Growth Report 2024 to 2029 by Market Data Forecast.
33 Ibid.
34 FinTech – Worldwide by Statista.
35 2023 Annual Fintech Market Update by Royal Park Partners.
Publication
After a lacklustre finish to 2022 when compared to the vintage year for M&A that was 2021, dealmakers expected 2023 to see the market continue to cool in most sectors, in response to the economic headwinds of rising inflation (with its corresponding impact on financing costs), declining market valuations, tightening regulatory scrutiny and increasing geopolitical tensions.
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