Fintech Assets Experiencing Increased Demand as Big Data, AI, Data Analytics, Automation “Aggressively Disrupt” Sector: Report

As the world economy continued to rebound during the first quarter of 2021 (after the COVID-19 induced lockdowns across the globe), so too did international mergers and acquisitions (M&A) activity, according to a new report released by Pitchbook.

Wylie Fernyhough, Senior Analyst, PE Lead, Pitchbook, noted in the report that 8,753 deals closed during Q1 2021 for “a total of $917.7 billion.”

Fernyhough added:

“Many gargantuan deals closed, including those targeting Refinitiv and Tiffany, which were negotiated in mid-2020. The outlook for the coming quarters may be even brighter. A surge of announced deals, including GE’s $30 billion+ proposed combination between the company’s aircraft leasing unit and AerCap, will buoy results and embolden other boards and dealmakers. The US in particular has been home to several significant announced deals.”

As the “quick” vaccine rollout in the United States may have reassured companies and PE firms (based in the country), “we expect this trend to continue, though Europe will be right behind by a quarter or two,” Fernyhough wrote.

He also noted whether it’s “growth-rich, cash-poor” tech firms looking to “fold in a strategic acquisition,” or an upstream oil-producing firm “highly leveraged to the price of oil,” stock financing was “paramount to a number of multi-billion-dollar deals.” He added that “cash-rich” PE companies “accounted for 36.9% of global M&A count in Q1 2020.”

Although this figure marks a reduction from the almost 41% seen in Q4 2020, it “speaks to the longer-term trend of PE firms gaining share of M&A volume,” Fernyhough added. He pointed out that “by comparison, PE-backed deals constituted 23.6% of global M&A count in 2014.”

Fernyhough continued:

“Despite elevated dry powder and corporate cash levels, early indications point to EV/EBITDA multiples falling by around one turn in 2021 for corporate and strategic deals. If the recovery continues apace, the median multiple may climb back to 10x or higher by year-end as it has every year since 2014, save for 2015, which clocked in at 9.8x.”

Dominick Mondesir, Analyst, EMEA Private Capital, noted that European banking consolidation continues. It has managed to maintain the momentum from the second half of 2020, and consolidation among local European banks “remains active given the pressure of the protracted low-net-interest margin environment on banks’ cash flow profiles, the pandemic, and regulatory measures,” Mondesir added.

For instance, Mondesir pointed out that in Q1 2021, CaixaBank acquired Spain-headquartered Bankia for $16.8 billion, and Spar Nord Bank (CSE: SPNO) acquired Denmark’s BankNordik, “indicating focus on dominating domestic markets through scale plays.”

He continued:

“Pan-European banking champions and rising carveouts: The next question is when European banks will move to become pan-European champions. Furthermore, we anticipate banks will be extremely active in divesting noncore assets through the remainder of the year, as they reevaluate business models in the wake of the pandemic, strengthen balance sheets and capital ratios, and raise further liquidity to seek out opportunistic M&A, especially for tech-enabled financial service assets.”

He also noted that Fintech assets have seen accelerating demand. Mondesir confirmed that Fintech assets are “experiencing heightened demand from both strategics and sponsors, as Big Data, AI, data analytics, and automation, among others, aggressively disrupt the sector.”

For example, the rise in bank branch closures has “created considerable opportunity for digital lenders, driven in part by consumers’ willingness to adopt alternative platforms,” Mondesir added.

He also mentioned:

“Dealmakers eye insurance companies: The insurance subsector was particularly active during Q1 2021, accounting for six of the top 10 largest financial services deals. The pandemic has had a negative impact on some areas of insurance, which is driving consolidation in the fragmented industry. Insurance companies are aggressively seeking yield in this low-interest rate environment through M&A to diversify business models, defend and extend market share, and achieve scale synergies.”

You can view the full report here.

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