Fintech M&A 2021 Deal Tracker: Equifax kicks off with $640M anti-fraud deal

2021 began with a flurry of primarily U.S.-based M&A activity, starting with credit reporting agency Equifax Inc.'s $640 million deal to buy anti-fraud specialist Kount Inc., closely followed by NCR Corp.'s $1.84 billion announced merger with ATM network operator Cardtronics PLC. Analysts say the stage is set for 2021 to be a busy year for financial technology M&A. However, following the collapse of Visa Inc.'s $5.3 billion megadeal for Plaid Inc. in the wake of an antitrust lawsuit from the U.S. Justice Department, deals above the $1 billion mark in the U.S. could face tougher scrutiny.

Equifax branches out

Equifax's acquisition of Kount fits with a developing pattern of consumer credit bureaus buying up data assets, according to Hamzah Mazari, a managing director at Jefferies.

Credit bureaus had been on an acquisitive streak in 2020, with Experian's acquisition of Tapad, a fintech providing digital identity solutions, in November and TransUnion's purchase of customer intelligence fintech Signal, announced in August.

The Kount deal will go some way toward helping Equifax make its business "a little less levered to the credit cycle," Mazari said.

Much of Equifax's business involves providing credit scoring on mortgages, car loans and new credit cards. But as the U.S. economy enters a phase in the credit cycle where demand for these services starts to lessen, it makes sense for Equifax to place more emphasis on other lines of business, he said in an interview.

The recent shift towards e-commerce is a secular trend, and where there is e-commerce, there is heightened risk of fraud, which means there should be solid demand for Kount's services in future, Mazari said.

"There is a need for fraud and identity solutions regardless of applying for a mortgage or not," he said.

The deal was also well-received by the team of analysts at Stifel.

"We like the Kount acquisition since it positions EFX much more strongly in the fraud and identity verification market, which is likely to be a solid growth market for many years to come," analysts wrote Jan. 11.

Equifax will likely pay for the deal with cash in hand, having had $1.6 billion in cash on its balance sheet at the end of 2020, the note said.

Equifax has finally been able to put the financial hit of a major fine it was served in 2017 for a data breach behind it, and the company is now in a strong position to contemplate more M&A, according to Mazari.

"We think this deal is just a first step before they really ramp up M&A," he said.

Jordan McKee, research director at 451 Research, an S&P Global Market Intelligence company, also sees potential for more deal activity from Equifax.

"I'm interested to see what they might layer on top of Kount," he said in an interview.

Reinventing the ATM

NCR's purchase of Cardtronics, best known as an ATM operator, might seem counterintuitive given the decline in cash use during the coronavirus era, according to McKee.

But NCR seems to be positioning itself for a world where the ATM is regarded as much more than a simple dispenser of bank notes.

"It's likely that NCR are imagining ATMs as the future of in-person banking. They can be a pretty decent replacement for bank branches," McKee said in an interview.

That chimes with how Cardtronics had been representing itself prior to the announcement of the merger.

"The self-service channel is where the future of banking lies," Cardtronics wrote in a Dec. 15, 2020, blog post titled "The Rise of the ATM as the New Branch."

As well as styling itself as the world's largest ATM operator, Cardtronics also provides payment processing services, which have been in high demand thanks to the rise of e-commerce during the pandemic.

"This potential purchase makes a lot of sense for NCR as the payment processing market is experiencing strong growth," CFRA analyst Keith Snyder wrote in a Jan. 12 note.

More scrutiny for mega mergers?

Although 2021 began with a flurry of M&A, the month also saw the definitive collapse of one of the most talked-about deals of 2020. Visa's multibillion-dollar bid for Plaid, a fintech that specializes in application programming interfaces, or APIs, the technology at the heart of open banking, fell apart after scrutiny from the DoJ.

Daniel Hanley, policy analyst at the Open Markets Institute, believes that megadeals in the U.S. fintech sector are set to come under even more scrutiny under President Joe Biden's administration, which Hanley believes will "take a more aggressive approach to antitrust issues."

President Biden's appointments thus far give some clues that a tougher stance on M&A could be around the corner, Hanley wrote in an email. For example, Rebecca Slaughter, acting chair of the Federal Trade Commission, is "particularly skeptical of vertical mergers" and wants increased protection for workers, he added.

451 Research is part of S&P Global Market Intelligence.