Despite uncertainty surrounding Britain’s decision to leave the European Union in June, the British Fintech sector continues to grow and a flurry of M&A activity made last month one of the sector’s busiest months yet.
The surge we saw in August comes on the back of what was a somewhat disappointing period directly following the Brexit vote. In July, only one deal of more than £100m in value was announced, in comparison to the typical average of three or four.
As the tech industry continues to boom, the specialist area of Fintech is enjoying a meteoric rise and is singlehandedly driving significant change within the financial services sector. Traditional banking platforms are now being disrupted by innovative, rapid advances in technology, and Fintech start-ups are benefiting greatly from investors wanting to share the success.
The rise of Fintech has also presented a threat to financial incumbents, who are now acknowledging the shift in the market and responding with their own investments and partnerships. Santander has awakened to this trend and now refers loans to FundingCircle, whereas in the US, the country’s largest banks have made serious investments in a large number of Fintech businesses. Such investments and partnerships are indicative of a ‘seal of approval’ from the financial world, as technology continues to dominate not only processes, but infrastructure, advisory and customer services.
Fintech M&A is forecasted to grow even further as we reach the end of 2016 and enter 2017, and the sector’s eyes will firmly be on the large software companies, who will be targeting emerging companies in an effort to add new technology to their service offerings and modernise in order to maintain a competitive edge.
One of the sector’s largest deals in Q3 of 2016 was the £140m purchase of Cofunds by Aegon, in a deal which secrured not only Cofunds’ Investor Portfolio Service, but also its retail and institutional business. Deals of a similar size are expected to be announced in Q4, with the rumoured £5.5bn flotation of banking software group Misys set to lead investments in the sector.
Technology is an evolving industry, and subsequently the sector’s appetite for M&A is far from diminished. Fintech M&A interest ranges right across the spectrum: from start-ups to large, renowned organisations, a vast number of varied businesses are continuing the sector’s deal-making momentum.
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