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Fintech M&A Deal Tracker — Deal volume plummets in November

Nearing the end of a year defined by staggering deal values, the number of fintech deals in November declined year over year and month over month.

The month's M&A activity reflects a broader trend in 2019: Although the aggregate value of fintech deals in 2019 has skyrocketed, the total number of deals has slumped. The fintech industry saw 381 deals for an aggregate value of $76.60 billion in 2018. Through Nov. 30 this year, the industry has recorded 276 deals in which the target is a fintech company for a total deal value of $127.99 billion.

The 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.

Large fintech deals continued in November with PayPal Holdings Inc.'s planned purchase of internet shopping and rewards platform Honey Science Corp. The $4 billion all-cash bid marks PayPal's largest-ever deal and would catapult the payments giant to the front end of the shopping experience, allowing it to engage with customers when they start searching online for an item to buy.

In September, Prudential Financial Inc. announced its planned acquisition of insurtech firm Assurance IQ Inc. for $3.5 billion, marking the 12th-largest since 2018. Analysts said that price seemed steep but still considered the deal a good use of Prudential's capital. Insurtech valuations have been getting richer, and some in the industry see a shakeout coming soon.

Although strategic tie-ups have defined the industry's megamergers this year, 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.

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Strategic acquisitions, and even smaller tuck-in purchases, can help fintech companies round out their solutions as they 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. Compass Point Research & Trading Managing Director Michael Del Grosso does not expect private equity firms to slow their investment in the fintech space.

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 temper company valuations, have not borne out in any consumer data that Compass Point's Del Grosso monitors, the analyst said. These valuations hinge on the outlook for the consumer, since payments growth is largely tied to spending.