Spotlight on Spacs: Fintech fever

The deep supply of prospective fintech targets still in private hands is expected to lead to more target mergers by special-purpose acquisition companies (Spac) alongside a fresh bout of blank-cheque issuance in the coming months – and European exchanges are in line to score.

With the sector reaping the benefits from secular tailwinds including the ubiquity of mobile payments and e-commerce, fintech has become synonymous with scale, quality and growth. Such is the promise of those credentials in the acquisition merry-go-round that fintech-focused Pegasus Europe and EFIC1 – which count former UniCredit chief Jean Pierre Mustier and ex-Commerzbank boss Martin Blessing among their respective founders – are two of Europe's largest Spac deals to-date.

Part of the draw for first-time and repeat issuers, advisers say, is that private-market fintech valuations are yet to match up with those in the public sphere. The most recent Spac wave has brought the sector out from several years "under the radar", one banker said, with ballooning price tags and an uptick in cumulative investment activity helping to put fintech in the headlights.

This year – already a record for Spac M&A more broadly – has seen 20 fintech initial business combinations (IBC) across Europe and North America, generating a staggering USD 80.8bn (EUR 69.9bn) in proceeds, Dealogic data shows. While only two of those took place in Europe, they still accounted for USD 15bn in deal value – up from USD 9.6bn in 2020.

Including the multitude of already fully-monetised vehicles targeting the sector, fintech will play its part in a "long tail" of cross-border Spac deal-making into next year, another adviser said. The biggest impetus for a fintech company to pursue a blank-cheque merger versus a traditional IPO remains the accelerated listing timeline and supposed valuation certainty offered by the former, even as some European unicorns like Swedish buy-now-pay-later firm Klarna have opted against them.

Pagaya Technologies, which operates an artificial intelligence network to make financial transactions more efficient, is the latest high-profile fintech to strike an IBC. Tel Aviv- and New York-based Pagaya announced last month that it is merging with EJF Acquisition Corp at a USD 9bn (EUR 7.7bn) valuation, raising around USD 200m in PIPE financing to support the deal. Israeli retail trading platform and Robinhood competitor eToro also announced an IBC with FinTech Acquisition Corp V in a deal worth USD 10.4bn (EUR 8.9bn) earlier this year, although it has notified a delay in completing the transaction with the US SEC.

With Spacs up against stiff competition from banks and wealth managers seeking new revenue models, all signs point towards one of M&A's flushest deal markets getting flusher.

"Spotlight on Spacs" is a monthly column tracking the latest news, data and analysis on special purpose acquisition companies, drawing on proprietary intelligence from Mergermarket and Dealreporter, as well as data from Dealogic.

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