Fintech: Buzz or substance?

Financial services delivery continues to see a fundamental and rapid makeover driven by technology. Retail payments, B2C and SME lending, personal finance and remittances have seen significant change. Capital markets, institutional banking and insurance, on the other hand, have been relatively slower, largely due to longer decision-making cycles, regulatory requirements or simply the absence of a compelling short-term cost-benefit rationale. Others, such as crypto-currencies or block-chain based technologies are merely scratching the surface of their true potential.

It is hardly surprising therefore that barely a week passes without another early-stage fintech business raising new rounds of capital. Among all this buzz however, many of the more established players also continue to transact, often driven by consolidation, new growth opportunities or imminent changes to the underlying market.

For every early-stage fundraise, we hear as frequently about an IPO, private equity-backed buyout or a corporate-led transaction involving a larger, more established fintech business. The SunGard-Fidelity National transaction alone was worth $5.1bn, while Worldpay's recent IPO saw the company raise $1.4bn.

The opportunity to disrupt legacy business models, strong regulatory drivers, and the highly scalable and global nature of many of the revenue models are seemingly driving premium valuations.

Historically, US VCs, larger fintech businesses and financial institutions were seen as the natural home for fast-growing or disruptive technology assets in the sector. Many financial institutions are now coming together to incubate, contract with, and even fund some of these businesses as co-investors. Banks, including Barclays and Santander, have set up arms-length investment funds to support new fintech businesses to grow the investor ecosystem.

Competition from strategic buyers remains acute, but the fintech sector in Europe is still providing a fertile feeding ground for high-growth, scalable assets for both private equity and venture capital investors. Indeed, Synova Capital recently invested in Merit Software alongside a US investor. This is a good example of quality assets that can be found in the smaller end of the market.

London is at the global centre of the fintech world and is generating meaningful returns for sponsors. Investors, however, need to understand the market dynamics and risks more than most, but the potential is huge and shows no signs of losing momentum.

Grant Thornton actively engages with sponsors and entrepreneurs in the fintech sector with recent transactions covering LSEG's Proquote, Techfinancials, DealHub, Sequel, thinkFolio, IntelliFlo and MultiFonds, among others. By bringing together expertise across technology and financial services sectors, as well as public company advisory, Grant Thornton has been at the forefront of fintech transactions, tailoring its advice to cover transaction structures, cross-border deals and carve-out issues.

Andy Morgan
Partner, TMT M&A
Grant Thornton UK
andrew.morgan@uk.gt.com

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