Financial Technology & Payments M&A Update – January 2023

Enterprise Consolidation Drives Robust FinTech M&A Valuations

Capstone Partners released its January 2023 Financial Technology (FinTech) & Payments M&A Update, reporting that the FinTech & Payments sector has showcased significant defensibility amidst rising inflation and interest rates, evidenced by healthy levels of merger and acquisition (M&A) and financing activity through year-to-date (YTD) 2022 as of December 1. Supported by a relatively strong U.S. dollar, U.S.-based buyers in the sector have gained substantial leverage in cross-border transactions, especially in the Asian and Latin American markets—where depreciating local currencies have created low-cost assets. Driven by volatile public markets, there has been significant consolidation of large public enterprises in the FinTech & Payments sector through YTD. This has typically materialized in take-private acquisitions by private equity firms and public players consolidating competitors.

Global M&A volume in the FinTech & Payments sector set an annual record in 2021 with 1,035 transactions announced or completed, representing an increase of 21.5% year-over-year (YOY). Deal activity has continued at a healthy pace in 2022, with 769 transactions announced or completed YTD, mirroring pre-pandemic levels. Further consolidation is expected as M&A has become a key strategic option for mature FinTech and payment providers seeking to gain market share and evade current public market volatility. Average sector M&A purchase multiples have remained healthy despite global economic turmoil and a downturn in M&A volume. In Q3 2022, sector M&A transactions averaged 5.7x EV/Revenue, rising more than a full turn from Q3 2021. At the top end of the M&A market, there have been 17 sector deals YTD with valuations exceeding $1 billion in enterprise value, demonstrating buyers’ willingness to consolidate leading players. Although average purchase multiples have been uplifted by large-scale transactions, middle market participants (less than $500 million enterprise value) have continued to comprise an overwhelming majority of FinTech & Payments sector deal activity.

Also included in our Fintech M&A report:

• Capstone’s FinTech Front Runners, a series of FinTech and payment startups that have exhibited exceptional leadership and revenue growth.
• How the U.S. dollar has appreciated compared to foreign currencies and how this has impacted cross-border M&A activity in the sector.
• Why the Bank Technology segment has received the highest sector M&A valuations through YTD.
• How the Payments segment has continued to lead sector M&A volume and financing activity.
• Which verticals are supporting transaction activity in the Insurance Technology segment.
• How wealth managers have reshuffled their approach to daily business, driving deal flow in the Capital Markets Technology segment.