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Fintech M&A Deal Tracker — August continues record-breaking year of megadeals


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Fintech M&A Deal Tracker — August continues record-breaking year of megadeals

August started with yet another fintech megadeal: London Stock Exchange Group PLC's $16.55 billion planned acquisition of financial analytics provider Refinitiv Holdings Ltd.

That deal marks the fourth-largest transaction announced in the fintech industry in 2019, behind the three megamergers in the payment processing space. Also at the beginning of August, Mastercard Inc. announced its largest-ever deal to acquire the majority of the corporate service businesses of European payments technology company Nets A/S for €2.85 billion. Compass Point analyst Michael Del Grosso called 2019 a "record year" for deal sizes, adding that the industry is likely to get a breather in the back half of the year.

"I would be surprised if we saw M&A activity continue on the pace and the scale that we saw at the start of the year," Del Grosso said in an interview. As for smaller, more disruptive companies, Del Grosso expects substantial M&A activity and capital markets activity to continue through the end of the year.

Although the aggregate deal value in 2019 has skyrocketed, the total number of deals in the year has slumped. The fintech industry posted 381 deals for an aggregate $76.33 billion in 2018 but has recorded 193 deals totaling $121.18 billion in M&A activity through Aug. 15. Total deal value for 2019 passed that of 2018 at the end of May with the announcement of Global Payments Inc.'s $22.15 billion planned acquisition of Total System Services Inc.

That came two months after the industry saw its largest-ever fintech deal, Fidelity National Information Services Inc.'s $35.36 billion now-completed bid for Worldpay Inc. The year kicked off with Fiserv Inc.'s $21.79 billion purchase of First Data Corp., which closed in July.

Although strategic acquisitions notched the two biggest fintech deals since 2018, private equity headlined more than half of the largest deals in the same period. Private equity claimed two of the largest deals of 2019: LSE's acquisition of Refinitiv from a Blackstone Group Inc.-led consortium and Thomson Reuters Corp., and a Hellman & Friedman LLC-led investor group's $10.97 billion purchase of The Ultimate Software Group Inc., a global provider of cloud-based human capital management services.

Strategic acquisitions, and even smaller tuck-in purchases, can help fintech companies round out their solutions as they increasingly look to provide a full end-to-end offering. The megamergers have sparked consolidation among competitors, but private equity continues to have large amounts of dry powder to deploy. Del Grosso does not expect private equity firms to slow their investment in the fintech space.

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The analyst highlighted three areas where tuck-in deals are likely to be most active: point-of-sale, business-to-business, and integrated payments. Companies in these segments simply are not large enough to warrant further megamerger-type deals, Del Grosso said.

Greg Peterson, a partner at PwC leading several private equity client teams, expects the broader payments industry to continue to see significant consolidation.

"People are searching for synergies, and frankly, a number of the synergistic opportunities are to take current spend on [research and development] and focus it on more technology solutions," Peterson said in an interview earlier in 2019. "The economies of scale that come out of these transactions will allow people to direct their investment in an appropriate way."

Deloitte highlighted cognitive and robotics technologies, digital lending, financial media and data solutions, and payment processing as highly sought-after segments in a fintech M&A report early in the year. As the fintech startups evolve into mature institutions, their M&A activity focuses on "rounding out" end-to-end services, the report said.

Fears of a recession, which would likely temper company valuations, have not borne out in any consumer data that Compass Point's Del Grosso monitors, the analyst said. But these valuations hinge on the outlook for the consumer, since payments growth is largely tied to spending.