Quarterly Fintech M&A Review: PE Goes After Middle Market Fintechs

PitchBookData,Inc. JohnGabbertFounder,CEO NizarTarhuniVicePresident,InstitutionalResearchandEditorial DylanCox,CFAHeadofPrivateMarketsResearch InstitutionalResearchGroup Analysis JamesUlan LeadAnalyst,EmergingTechnologyjames.ulan@pitchbook.com QuarterlyFintechM&AReview:PEGoesAfterMiddle-MarketFintechs Withmiddle-marketdealsourcingresource PitchBookisaMorningstarcompanyprovidingthemostcomprehensive,mostaccurate,andhard-to-finddataforprofessionalsdoingbusinessintheprivatemarkets. Data RudyYang SeniorAnalyst,EmergingTechnologyrudy.yang@pitchbook.com Keytakeaways •ThisreportfocusesonUSandCanadianfintechM&Aandexcludescrypto,insurtech,andproptech.WealsoexcludetheCapitalOne/Discoverdeal MattNaccionales SeniorDataAnalyst pbinstitutionalresearch@pitchbook.com Publishing DesignedbyDrewSanders PublishedonMay16,2024 Contents Keytakeaways1 EnterprisefintechM&A3 PEfintechbuyouts4 Corporatefintechacquisitions6 becauseweviewDiscoverasmoreofalenderthanapure-playfintechcompany,thoughthisisdebatable. •EnterprisefintechM&AwasstronginQ1:Q4’sPEbuyoutcomebackcontinuedintoQ1,whichsaw32PEandcorporateB2Bfintechacquisitionsandwilllikelyreach42to46dealsasmorecompaniesreport.OurestimatedQ1dealcountof42to46dealsishigherthanQ4’s27loggeddeals(31to33estimated)andQ12023’s30deals.IfQ1’sincreaseisasustainabletrend,thechangeislikelyduetofintech/payments’strongoperatingperformance.Paymentshasbuckedthetrend.High-qualitytechassetshavebeentransactingbecausePEismoreapttopayupforgrowth,margin,andstability. •PEbuyoutsrise:InQ1,welogged16fintechPEbuyouts(andweestimatetherewere18to21),whichishigherthanQ4’s14loggedbuyouts(estimated15to16)andsignificantlyhigherthanQ12023’s11buyouts.Additionally,Q1’s16buyouts(18to21estimated)washigherthanthe11buyoutsperquarterin2023and 14perquarterinthesecondhalfof2022.Inthelast12months,thetopthreesegmentswereenterprisepayments(27%),capitalmarkets(22%),andfinancialservicesinfrastructure(20%). •CorporateM&Aseessignsoflife,butearlytocallarevival:CorporateacquisitionsreboundedsomewhatinQ12024,reaching18loggeddealsand22to24estimateddeals,thoughthiswasoffofQ4’sweakquarter.Q4sawthe lowestnumberofcorporateacquisitionsinthelastfouryears,at14loggedand16estimated.Additionally,Q1’sQoQincreasewastobeexpectedgiventhat Q1isseasonallystrongerthanQ4.ItwilltakesometimeforCEOstobecomeacquisitiveagainafterpsychologicallyretrenchingduetodeceleratingrevenuegrowthandrecessionfears. 1 •Inmiddle-marketPE,paymentswithsoftwarecontinuetodominate:PaymentsremainsthemostpopularPEbuyoutcategory.Q1emphasizedthatindustry-specificpaymentstools,combinedwithworkflowsoftware,cangeneratethekindofrevenuegrowthandmarginthatcreateattractivebuyoutreturns.Forexample,TalusPay,whichisownedbyAlvarez&MarsalCapital,acquiredJobox.ai,whichoffershomeservicespaymentsandworkflowsoftware(create/signdigitalcontractswithcustomers,trackpast/currentjobs,compileallcustomertext/emailconversationsinoneplace)tocomplementTalus’existingverticalsofhealthcare,retail,restaurants,manufacturing,andgovernment. •DealsourcingresourceforPEshops:Tohelplower-middle-marketandmiddle-marketbuyoutshopsdealsource,wehaveincludedalistofVC-backed paymentsandfintechinfrastructurecompaniesthathaveraisedaSeriesAorBbetween2018and2022,butnotasubsequentround.OurfintechmarketmapcanalsobeusedtodealsourcebycopyingandpastingPitchBookIDs(PB-IDs)intoaPitchBook“companiesanddeals”search.PitchBookclientscanemailrudy.yang@pitchbook.comforfurtherdirections. •Softlandinglikelydrivingcorporateacquisitions.ExpectmorebigcorporateM&A:Recently,therehavebeenthreelargeacquisitionannouncementsandarumoredfourth.TheseincludeCapitalOne’sproposedacquisitionofDiscoverfor$30billion-plus,Nasdaq’sacquisitionofAdenzafor$10.5billion,andPEfirmAdventInternational’sacquisitionofNuveifor$6.3billion.NewsmediahavereportedthatAmadeusITGroupandFiservarecompetingtoacquireShift4, whichisvaluedatabout$5.0billion.1LargecorporateacquisitionsarelargelyduetotheC-suite’simprovingexpectationsforasoftlanding.Ingeneral,executivesarehesitanttomakeamaterialacquisitionaheadofarecession.18-plusmonthsago,themarketsexpectedexactlythat,withratesrisingandaninvertedyieldcurve.Post-federalstimulus,theworseningsentimentanddeceleratingrevenuegrowthcausedleadershiptofocusoncuttingcostsandstabilizingrevenuegrowthoverM&A. 1:“Exclusive:Fiserv,AmadeusVietoAcquireShift4Payments,SourcesSay,”Reuters,AnirbanSenandDavidFrench,February28,2024. EnterprisefintechM&A StrongQ1enterprisefintechM&A:InQ12024,welogged34enterprisefintechacquisitions,whichwilllikelyreach42to46dealsasmorecompaniesissuepressreleases,asdealsareoftenannouncedpost-acquisition.OurQ1estimateddealcountof42to46dealsishigherthanQ4’s27loggeddeals(31to33estimated)andQ12023’s30deals.Q12024’s42to46estimateddealcountisalsohigherthan 2020’saverageof33dealsperquarter,thoughunsurprisingly,itislowerthan2021’s54dealsperquarter. Valuationexpectationscouldbeconvergingforqualityassets:Q1’sdealcountincreasewasdrivenlargelybybuyoutshops.Iftheincreasepersists,webelievethedrivingforceswillbe:paymentsbusinessesperformingwellrela