Nine of the 20 largest fintech deals on record were struck within the past two years, according to S&P Global Market Intelligence data.
M&A activity has been a constant in the fintech realm for years as companies pursued bolt-on acquisitions to build out their businesses. But the sector appears to have a new appetite for transformative large-scale mergers that companies hope will let them tap into new geographies and business lines. That trend will only continue as the environment grows more competitive, analysts believe.
The recent flurry of M&A activity traces back to August 2017, when Vantiv Inc. and Worldpay Group PLC agreed to merge in a $9.84-billion deal that ultimately created Worldpay Inc. "The world of fintech companies has gotten so much larger that scale is getting even more important today than before," Wolfe Research analyst Darrin Peller said in an interview. "You have to ramp up your scale as fast as you can to be as competitive as possible."
Now, roughly 20 months later, Worldpay is the target of what will be the industry's largest acquisition ever, if completed. On March 18, Fidelity National Information Services Inc., or FIS, agreed to pay $35.34 billion to buy the Cincinnati-based payment processing company. The record-breaking deal came on the heels of Fiserv Inc., a leading competitor to FIS, agreeing to acquire First Data Corp. for $21.79 billion in what is now the industry's third-largest deal.
Currently, both FIS and Fiserv primarily focus on processing payments for consumer banks. But the companies' respective acquisitions of Worldpay and First Data will provide them with an access point into the booming business of servicing payments for merchants, which has grown largely thanks to the rise of e-commerce.
The tie-up between FIS and Worldpay will also allow the combined company to more easily expand internationally into markets like India and Brazil, FIS executives said March 18 on a call to discuss the deal.
Payment processing companies are not expected to slow down their hunts for scale, either.
PayPal Holdings Inc. has signaled in the last year that it plans to seek out several deals valued between $1 billion and $3 billion in each of the next several years. The San Jose, Calif.-based company's revamped M&A strategy was unveiled soon after it agreed to a $2.20-billion deal to acquire iZettle AB, a European company that builds and sells payment processing tools such as credit-card chip readers for small businesses.
As PayPal's largest acquisition ever, the deal was largely viewed by analysts as a move to combat the growing overseas presence of its core rival, Square Inc. PayPal's most recent deal is a $750-million minority investment in Argentinian e-commerce company MercadoLibre Inc., which MoffettNathanson analyst Lisa Ellis recently said could have been one of the catalysts behind FIS' deal for Worldpay.
Still, even though scale remains to be a prominent factor for payment processors looking to compete, it is not the only driver behind the industry's recent flurry of M&A, according to Wedbush analyst Moshe Katri.
The recent deals are the latest sign that payment companies are looking to the deal market to help establish "ecosystems" of offerings they can use to retain their clients, cross-sell their products and expand their business' reach, all of which Katri said can help establish a scalable and booming company.
"That's the beauty of this business," he said in an interview.