May 31, 2023

Financial Technology M&A Update – May 2023

Financial Technology M&A
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Artificial Intelligence and Machine Learning Permeate the FinTech Sector

The Financial Technology (FinTech) sector has been thrust into a period of substantial innovation. Following the record levels of merger and acquisition (M&A) and venture capital activity witnessed in 2021, sector participants have increasingly looked for ways to differentiate technology offerings and attract acquirer and investor interest. As a result, the development of artificial intelligence (AI)- and machine learning (ML)-enabled software has permeated the FinTech sector.

Sector Participants Leverage AI and ML to Attract Investor Interest

Although the specific use cases for AI and ML differ depending on the segment, the vast majority of FinTech sector leaders have prioritized simulated human intelligence capabilities and the potential synergies brought by this technology. Of note, 86% of financial services executives have projected AI to be critical to business operations over the next two years, according to a 2022 Deloitte survey.1 The acquisition appetite for AI- and ML-enabled software providers has largely materialized in tuck-in deals, with strategic and sponsor-backed buyers rolling up participants with advanced capabilities to bolster specific business functions. Looking ahead, Capstone expects the maturation of AI and ML to drive sector M&A activity throughout 2023 and beyond.

The use of AI and ML is nothing new across the various sectors in FinTech. We have seen its use in applications in WealthTech, BankTech, InsurTech and across the Payments spectrum. Use cases tend to be B2C or B2B2C as consumer demand drives the need for efficiencies. B2B is further behind the adoption curve but in all cases has embraced it as a way to augment but not replace current processes.

David FrancioneHead of FinTech & Services Investment Banking, Capstone Partners

Financial Technology M&A Volume Normalizes, Valuations Remain Robust

M&A activity in the FinTech sector has remained strong, with 313 transactions announced or completed year-to-date (YTD). Although this marks a 21% decline year-over-year (YOY), M&A volume to-date has outpaced YTD 2020 and 2019 levels by 12.6% and 6.5%, respectively, illustrating steady long-term growth in the M&A market. Sector deal flow has been upheld by strategic buyers, which have comprised 70.9% of YTD volume. Private strategic acquirers have accounted for the lion’s share (48.9%) of transaction activity, namely targeting sector participants with advanced capabilities such as AI, ML, and data science to bolster technology stacks. Private equity has maintained its presence in the FinTech M&A market despite a difficult lending environment impacting transaction financing. Sponsors have largely focused on add-on deals (18.2% of YTD activity), as equity-heavy transaction structures have deterred many private equity firms from pursuing larger platform acquisitions.

Despite a slowdown in deal volume, sector M&A valuations have remained robust YTD 2023, with the average purchase multiple amounting to 5.9x EV/Revenue compared to 5.3x EV/Revenue in full-year 2022. Healthy sector valuations can likely be attributed to an increase in the scarcity of assets and in selectivity among strategic and financial buyers, with acquirers targeting profitable businesses with strong earnings and recurring revenue. In a recent example, Nexi (BIT:NEXI) announced its acquisition of PayComet, Sabadell's (BME:SAB) Payments business, for an enterprise value of $433.6 million, equivalent to 5.7x EV/Revenue (February 2023). PayComet operates a digital payment platform for retailers and e-commerce businesses and is expected to generate ~$32.6 million in EBITDA by year-end 2023, according to a press release.2

Healthy Buyer Appetite for Historically Low M&A Volume Segments

Although the Payments segment has continued to comprise a significant portion (32.6%) of sector M&A targets YTD, acquisition targets in the Capital Markets Technology and Insurance Technology (InsurTech) segments have accounted for an elevated portion of total sector transactions. Driven by the implementation of digital business models and adoption of digital assets, wealth managers have increasingly relied on analytic software tools, fueling M&A activity in the Capital Markets Technology segment. Similarly, heightened digital transformation in the Insurance space has expanded the buyer universe in the InsurTech M&A market, with services businesses targeting software providers to enhance product development, distribution, intermediation, underwriting, and claims. Of note, Arch Insurance, Arch Capital Group's (Nasdaq:ACGL) insurance arm, acquired Thimble in April 2023 for an undisclosed sum. Thimble develops a software platform providing small businesses with general liability, professional liability, and business equipment protection insurance policies. The acquisition expands Arch Insurance's digital solutions for small business customers and brokers. "At Arch, we’re always looking to expand our digital solutions and create new, easy ways to do business with us. Thimble makes insurance easy. The Thimble team has created a best-in-class digital experience for small business customers and agents to acquire and manage insurance. We’re excited about growing the Thimble platform and applying many of its digital practices across Arch to better serve our partners," said Jay Rajendra, Arch's Chief Strategy and Innovation Officer, in a press release.3

AI and ML Capabilities Attract Strong Acquirer Interest Across FinTech Segments

Sector participants armed with AI and ML tools have increasingly piqued buyer interest. Strategic and sponsor-backed businesses have been the most active buyers in the AI and ML verticals, opting to acquire firms with proven technology rather than spending research and development (R&D) budgets on building AI and ML in-house. Outlined below are the use cases, benefits, and recent M&A transactions of AI and ML in each segment of the FinTech sector.

  • Bank Technology - Although the Banking sector has historically been dependent on technology, AI- and ML-enabled capabilities can further improve efficiency across front-office operations, back-office operations, and core banking products and services. While a full-scale adoption has yet to occur, many banks are expected to integrate AI and ML in data-intensive functions such as customer experience, underwriting, debt collection, and regulatory and risk assessment. As a result, bank technology (BankTech) providers equipped with AI and ML capabilities have been highly sought after M&A targets. In a recent example, CUBE Content Governance Global acquired The Hub Artificial Intelligence for an undisclosed sum (January 2023). CUBE develops an automated regulatory intelligence platform for banks and other institutional lenders. The Hub's AI-enabled regulatory data monitoring software will be fully integrated into CUBE's platform to efficiently monitor regulatory obligations and predict and mitigate compliance risks. "We have partnered with CUBE for some time and see this as a natural next step in more closely aligning both firms’ AI-driven regulatory technology. CUBE’s strategy will ensure Hub’s employees, customers, and partners are in safe hands and will benefit from further investment from what is clearly now the undisputed market leader," said Juned Jable, Co-Founder and CEO at The Hub, in a press release.4
  • Capital Markets Technology - Wealth management and financial advisory firms have increasingly leveraged AI and ML tools to enhance investment decisions, improve the accuracy of risk assessments, and provide personalized investment advice to clients. AI algorithms have been particularly pertinent in portfolio management, which are typically used to analyze vast amounts of trading data. Buyers in the space have looked to capitalize on the rapid adoption of AI and ML, targeting middle market businesses with proprietary AI algorithms. SMC Entertainment (OTCPK:SMCE) has demonstrated this with its announcement to acquire Fyniti Global Equities for an enterprise value of $25.0 million (February 2023). Fyniti develops an AI- and ML-enabled platform for quantitative investing and wealth management electronic block trading. The company's platform also provides AI-driven daily ratings on stocks, research reports produced by large financial institutions, and insights on investor sentiment. The acquisition enables Fyniti to finance the development of a mobile application for wealth managers and personal investors.
  • Insurance Technology - InsurTech segment participants have increasingly added direct-to-consumer (DTC) capabilities to their proprietary platforms, operating as digital insurance vendors offering property and casualty, health and life, and commercial policies via online channels. The DTC model has spurred the adoption of AI and ML technologies in the segment, with custom algorithms utilized to create risk profiles, expedite policy distribution, and create a frictionless experience for the insurer and consumer. Many large InsurTech players have incorporated AI and ML through strategic M&A, exemplified by Candid Insurance Services' acquisition of Anorak Technologies in January 2023 (undisclosed). Anorak operates an online platform that provides life insurance advisory services to customers. The company's application uses data science and ML to identify suitable life insurance policies. Candid, a subsidiary of The CLARK Group, plans to leverage Anorak's capabilities to become the largest online insurance broker in Europe. "Anorak has a fascinating proposition that I have been following for some time. The founders have been early movers in the inevitable digitalization of the protection market and have brought the first fully automated and regulated online advice path to market, an amazing achievement. Anorak’s technology and brand will greatly strengthen our protection proposition and accelerate our growth plans in the U.K. market," said Candid CEO, Matt Edwards, in a press release.5
  • Payments - Although AI and ML have been heavily implemented across the Payments ecosystem, the Payment Processing subsegment has been at the forefront of adoption. In the Payment Processing space, these technologies are typically utilized to swiftly gather and analyze historical transaction data and detect risky behavior and fraudulent activity. ML-driven fraud detection has been especially relevant as consumers shift from traditional currency and credit cards to digital wallets. Participants offering secure payment processing through advanced technology have garnered strong buyer interest, particularly from the private equity community. In a recent example, Providence Strategic Growth (PSG) Equity, a software-focused private equity firm, acquired Unnax Payment Systems for an enterprise value of $42.6 million (March 2023). Unnax operates an open source banking platform, offering secure, ML-enabled payment processing solutions in real-time. PSG Equity plans to expand Unnax's presence across Europe through organic growth measures and add-on acquisitions.
  • Real Estate Technology - The Real Estate Technology segment has experienced a significant transformation as a result of AI and ML integration. Of note, AI and ML in the Mortgage Technology subsegment has the potential to optimize the lending process through improved customer experience, routine task automation, and enhanced document management. Sponsors with mortgage services portfolios have recently executed buy-and-build strategies to incorporate AI capabilities through add-on engagements, accelerating platform businesses' digital transformation. Columbus Capital-backed ColCap Financial has demonstrated this with its acquisition of U.K.-based Molo Tech in February 2023. Terms of the transaction were not disclosed. Molo Tech provides digital mortgage lending software that uses AI to identify suitable home financing solutions for consumers. In addition to gaining access to Molo Tech's digital expertise, Molo's $12.4 billion loan portfolio will be rolled over to ColCap, according to a press release.6 AI-enabled startups in the Mortgage Technology space have garnered significant investor interest from the venture capital community, exemplified by Ocrolus’ $10.5 million Series C2 funding round in February 2023. Ocrolus has raised an aggregate $131.2 million to-date, with a post-money valuation of $510.5 million as of February 2023. The company provides an AI-driven document automation platform, enabling faster and more accurate lending decisions. With the additional financing Ocrolus has been able to scale its client base, adding 20 new customers in the last 45 days, according to a press release.7

AI and ML technologies offer broad applicability in real estate, with the potential to deliver significant value to owners, operators, brokerages, and lenders. These technologies can assist owners and operators to optimize utility usage and predict maintenance issues; brokerages and agents automate tasks and offer personalized advice to buyers and sellers; and mortgage lenders enhance risk management, fraud prevention, and underwriting efficiency. The companies that embrace and effectively harness the full power of these technologies will be the future frontrunners in the industry.

Taylor WoodsonManaging Director, Capstone Partners

To discuss the impacts of AI and ML in your segment, provide an update on your business, or learn about Capstone's wide range of advisory services and FinTech sector knowledge, please contact us.


  1. Deloitte, "The Future of AI in Banking,", accessed May 11, 2023.
  2. MarketScreener, "Nexi Agreed to Acquire 80% Stake in PayComet,", accessed May 11, 2023.
  3. Arch Insurance, "Arch Insurance Acquires Thimble,", accessed May 11, 2023.
  4. CUBE, "CUBE Acquires The Hub…,", accessed May 11, 2023.
  5. RealWire, "CLARK Group Acquires Anorak,", accessed May 11, 2023.
  6. Mortgage Finance Gazette, "ColCap Buyers 80% Stake in Digital Lender Molo,", accessed May 11, 2023.
  7. CISION, “Ocrolus Closes its Best Month in Company History Based on Strong Demand for Lending Automation,”, accessed May 19, 2023.


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