2024 FinTech Surge: M&A Activity Drives Industry Revival

Stephanie Walden, et al.”What is Fintech.” Forbes Advisor, 17 Nov. 2024

The FinTech sector has been a focal point of innovation and investment over the past decade, however, 2023 marked a turning point as global macroeconomic conditions significantly impacted mergers & acquisitions, and investment activity. The once fast-growing sector faced heightened volatility, driven by rising interest rates, inflation, and geopolitical uncertainties. Despite these headwinds, the outlook is considerably more optimistic, with many expecting an upswing in M&A activity. This article examines the key trends of FinTech M&A in 2023, explores how deal flow has evolved in 2024, and highlights some of the most notable transactions that could shape the industry in the coming year.

2023: A Year of Decline

In 2023, the FinTech industry experienced one of its most challenging years in recent memory, with M&A activity reaching its lowest levels since 2017. Several factors contributed to this downturn, most notably macroeconomic instability characterized by rising interest rates and rampant inflation. The ongoing Russia-Ukraine conflict further fueled uncertainty, making investors hesitant to engage in large-scale deals.

At the start of 2023, there was cautious optimism that these headwinds could lead to industry consolidation. It was expected that FinTech companies facing liquidity pressures might opt for exit strategies, driving M&A activity. Established technology companies and financial institutions were well-positioned to capitalize on these opportunities by acquiring undervalued or distressed FinTech assets. However, despite this anticipated wave of consolidation, actual deal activity fell short of expectations. As a result, total deal value dropped from $63.2 billion in H2 2022 to $52.4 billion in H1 2023, reflecting a sharp decline in both volume and value.

Annual equity funding also suffered, with total investments amounting to $39.2 billion—the lowest level seen since 2017. Investment activity was especially subdued in later-stage funding rounds, with early-stage rounds (seed and Series A) making up a larger share of deals.

Deal Flow in 2023 and 2024

Deal flow in 2023 reflected a more cautious investment landscape. Global M&A volume in the FinTech sector reached $113.7 billion across 4,547 deals in 2023, representing a 24% decrease in deal volume compared to 2022 ($164.1 billion and 6,006 deals). The payment subsector remained resilient, accounting for 43% of deal volume in 2023, but many other subsectors such as WealthTech saw significant drops in activity.

As we look ahead to 2024, the outlook for deal flow is markedly more optimistic. Global FinTech M&A volume is expected to rebound, driven by a combination of easing macroeconomic conditions and a more balanced valuation environment. According to McKinsey, transaction activity should increase as global M&A volume across all industries is projected to grow by 14% in 2024. This growth will be particularly pronounced in the FinTech sector, where investor sentiment is expected to improve alongside declining interest rates and stabilizing inflation. The payments space will likely see the highest activity level, given the continued consolidation at local, regional, and global levels.

Additionally, there will be opportunities for distressed asset acquisitions as some FinTech firms struggle with their cash burn rates. Companies that were able to secure early-stage funding will likely seek to expand their capital positions through strategic acquisitions. Financial institutions are expected to remain active buyers as they look to innovate and expand their product offerings.

Notable Transactions in 2024

2024 featured several high-profile FinTech transactions that will help define the industry's next growth phase. The most notable targets were in the B2B (Business-to-Business) and B2C (Business-to-Consumer) sectors, where businesses and consumers alike continue to demand streamlined financial services and payment solutions. According to Capstone Partners, B2B FinTech companies are garnering strong buyer interest and maintaining high valuations, particularly in the areas of enterprise payment solutions, compliance technology, and wealth management platforms.

Acquirers in the FinTech sector have demonstrated a strong willingness to pay premiums for businesses operating in high-growth segments, particularly those serving key end markets like B2B payments, eCommerce, and capital markets. Data from 2021 through YTD 2024 reveals that the average purchase multiple for B2B targets stands at 5.9x EV/Revenue, compared to 5.5x for B2C targets and 4.9x for DTC (Direct-to-Consumer) targets. This trend is reflected in several high-profile transactions in 2024, underscoring the sector's continued consolidation and appetite for strategic acquisitions.

Several transactions that marked the 2024 FinTech space:

·         Global Payments (NYSE: GPN) reached an agreement to acquire Evo Payments in January 2024 for $4 billion. The deal aims to expand Global Payments’ presence in B2B payments, particularly in high-growth markets like Latin America and Europe.

·         Advent International announced its acquisition of Nuvei (TSX: NVEI) in April 2024 for $6.3 billion. Nuvei’s payment platform, which processed over $200 billion in payments in 2023, will enhance Advent’s global position in eCommerce, B2B, and embedded payments.

·         Fiserv (Nasdaq: FISV) announced its acquisition of cloud-native core banking platform Finxact in February 2024 for $650 million. The acquisition will strengthen Fiserv’s digital banking infrastructure, offering more scalable solutions to financial institutions.

·         CapVest Partners-backed Datasite Global acquired Ansarada Group (ASX: AND) in February 2024 for $140.1 million, valuing the deal at 4.1x EV/Revenue. The acquisition bolsters Datasite’s position in capital markets, adding over $1 trillion in transaction value processed by Ansarada’s data room solutions.

·         Thomson Reuters Finance (TSX: TRI) completed its acquisition of Pagero Group (OM: PAGERO) in January 2024 for $820.8 million, at an 8.6x EV/Revenue multiple. The deal enhances Thomson Reuters’ B2B payments automation capabilities, capitalizing on regulatory trends pushing for e-invoicing and AP/AR automation in over 80 countries.

·         Dover Fueling Solutions (NYSE: DOV) acquired Bulloch Technologies in January 2024 for $112.1 million. Bulloch’s point-of-sale (POS) technology processes $35 billion in sales annually, and the acquisition is expected to improve Dover’s digital and recurring revenue streams.

These notable transactions illustrate a clear preference for high-growth segments like B2B payments, eCommerce, and data-driven solutions. As acquirers continue to pay premiums for FinTech companies, these deals reflect the ongoing consolidation and evolution of the industry, with buyers strategically positioning themselves for future growth.

2024: A Promising Rebound

As the global economy shows signs of recovery, 2024 is expected to continue to be a promising year for the FinTech sector. Investors and companies are adjusting to a more restrained valuation environment, and macroeconomic conditions are projected to improve as inflation stabilizes and interest rates potentially decline. This easing of economic pressures will likely restore investor confidence, leading to an increase in both M&A and investment activity.

One of the most significant drivers of growth will be the continued consolidation within the payments space, as companies seek to expand their market reach through strategic acquisitions. Additionally, early-stage funding rounds are expected to increase in volume, driven by investor interest in emerging technologies such as AI and asset tokenization. Although late-stage funding rounds may remain more challenging due to lingering valuation concerns, overall investor sentiment should improve as the market stabilizes.

Future Outlook

After a challenging 2023, the FinTech sector is poised for a rebound in 2024 and 2025, with M&A and investment activity expected to rise as global macroeconomic conditions improve. Notable transactions such as Global Payments’ acquisition of Evo Payments and Fiserv’s acquisition of Finxact will set the stage for further growth, demonstrating the continued importance of innovation and strategic alignment in the FinTech industry.

As we look ahead, the FinTech market is forecast to grow significantly, reaching $644.6 billion by 2029, driven by increased adoption of digital payments, mobile banking, and technological advancements. With improved investor confidence and a focus on consolidation, 2024 and 2025 could mark the beginning of a new phase of growth and innovation in the financial technology space.