Is Fintech Fueling Financial M&A’s Rebound?

According to our latest market brief, Fintech will be the wind in the sails of Financial M&A this year.

10 March 2021

Financial Services M&A Intralinks report

The world was dealt a historic one-two punch in 2020 with the COVID-19 pandemic which infected and killed millions of people. As a result of government-ordered shutdowns and travel bans, the shuttering of economies worldwide led to a global recession.

After a brief hiccup in March 2020, mergers and acquisitions (M&A) rebounded as economies clawed back through various stimulus schemes. Highs in the Dow Jones Industrial Average and S&P 500 were boosted even higher than they already were by more certainty in U.S. politics and the global rollout of vaccines to stop the spread of coronavirus. All of this made for year-end optimism.

The tide for M&A in the financial services sector rose too. It was much anticipated, considering the sector took its licks early on in the pandemic crisis. Historically, the Financial sector has taken a hit during times of economic uncertainty that make rationales hard for investors but then usually rebound.

pitchbook_financial_services-reportIn our most recent market brief, Financial Services M&A: Consolidation & Innovation produced using data from PitchBook, we detail why Financial is now looking up, following a cycle we’ve seen earlier last decade where deal volume fell and aggregate volume stayed robust due to mega-mergers and consolidation by major players.

In the past year, M&A volume revolved around a variety of Financial segments, diverging from its usual staple: Insurance, Commercial Banks and firms focused on Capital Markets.

But that’s changing. With the economic crisis of last year, increased consolidation has brought Insurance activity back in play. Consolidation of insurance brokerages at mid-to-lower levels, along with disruption of retail investment, has created a new spark for Financial M&A: Fintech.

Regional perspective

For instance, in North America, retail trading brokerages with relaxed trading costs have triggered investment in automation to preserve margins. Europe may follow suit, bearing the weight of regulation overhaul and economic policy. In Latin America, we see contracting GDP pressuring dealmakers to make technology-based acquisitions to better cater to consumer demand.

In APAC, hit first with the COVID-19 crisis, competition among tech giants is fierce, and, similar to NA, consolidation toward Fintech by insurance giants stands to bolster the entire Financial sector here.

All in all, following antitrust setbacks several years ago, Financial Services M&A is thriving as they venture more toward vertical mergers, particularly where tech-focused targets play a role.

Having grown swiftly over the years, 2020 saw the close of 51 venture-backed Fintech acquisitions — a new high. As the sub-sector targets markets from small business to unbanked consumers in emerging economies, we expect Fintech to be the wind in the sails of Financial M&A into 2021.

So, fortunately for Financial, the longer-term drivers of M&A within the sector — like Insurance and Fintech — seem to have risen above the pitfalls of the past year’s crisis.

In Financial Services M&A: Consolidation & Innovation, we get into more of the data, and the nuts-and-bolts of the potential for Financial into 2021, and how each region’s regulatory policies may affect it all.

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