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Financial Institutions M&A: Sector trends - June 2019

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June 2019

We highlight the key European M&A trends in the first half of 2019, and provide our insights into the outlook for M&A moving forward

Introduction

As global fintech funding in Q1 2019 approaches US$6.3 billion, London is poised to rival San Francisco as stable to the highest number of unicorns.

Established European financial institutions have joined the fintech race, hoping to harness the promise of technology—a smooth, tailored and safe consumer experience, available everywhere and to everyone. However, innovation is expensive, absorbing valuable resources at a time of unresolved trade concerns, fragmented markets, political uncertainty and unknown Brexit impact.

Do fintechs justify such high valuation multiples? Can fintechs really deliver the seemingly endless possibilities? Would resources be better allocated elsewhere?

In this series of biannual reports, we analyse inorganic investment strategies and highlight the key M&A trends across Europe and the UK in H1 2019. Focusing on banks, fintech, and other financial services (i.e., asset/wealth management, market infrastructure, consumer finance and Specialty finance), we also provide our insights into the outlook for H2 2019 and beyond.

fig m&a introduction

European financial services
M&A trends

Consolidation continues at pace—mega-mergers on the horizon

The wait is over. Whispers of mega-deals have matured into agenda items for boards of many larger European banks.

Financial Institutions M&A: Sector trends - June 2019

Stampede of the unicorns

H1 2019 has seen European fintech M&A hit new heights. Fintechs have enjoyed funding support from established financial institutions, financial sponsors, sovereign wealth funds, data giants and family offices. The next 36 months will be pivotal in identifying fintechs which will revolutionise financial services

Financial Institutions M&A: Sector trends - June 2019

Asset/Wealth Management

Fallout from MiFID II continues to drive industry consolidation. In the last 6 months, there has been a glut of smaller deals, but a dearth of megamergers

gold coins

Payments

Rapid rise of mobile commerce, e-commerce, growing merchant/ consumer familiarity with non-bank providers and accessibility by under-banked communities are all driving demand for electronic payments. It is no surprise that M&A levels have reached stratospheric heights, and show little sign of descending

banknotes

Stock exchanges/Clearing houses

Seeking multijurisdictional scale, as concerns around long-term viability of the independent stock exchange operational model continue to grow

round vault door

Brokers/Trading service providers

Market consolidation continues. MiFID II, sluggish capital markets, increasing operational overheads and over-brokered European financial centres drives M&A

stock market display

Credit cards/Consumer finance

Financial sponsors provide dry powder to new entrants seeking to disrupt existing card providers, 'level-up' in-store consumer finance solutions/experience and fill the void left by payday lenders

Financial Institutions M&A: Sector trends - June 2019

Specialty Finance/Marketplace lending

Trade consolidators dominate the M&A charts, seeking scale, vertical integration and opportunities to conquer their own niches

bank vault door
Financial Institutions M&A: Sector trends - June 2019

Credit cards/Consumer finance

Financial institutions M&A sector trends: credit cards/consumer finance — H1 2019 and outlook for H2 2019

Insight
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5 min read

Current market

Consistent, marginal upward

We are seeing

  • New market entrants securing funding from financial sponsors and 'big bank' venture funds (e.g., Anyfin, Salary Finance, Jaja Finance, etc.)
  • Trade buyers seeking scale
  • Partnerships between incumbents and technology providers (particularly biometric fingerprint technology)

Key drivers

  • Financial sponsors—market opportunity to:
    • Level-up in-store consumer finance solutions/ experience
    • Disrupt credit card market
    • Filling the void left by payday lenders
  • Strategic investors:
    • Big banks—tapping new markets and expanding geographical reach (e.g., Bankinter is to enter the Irish market following its acquisition of Avantcard)
    • Payment providers—expanding footprint in the POS financing space
    • Existing card operators—seeking technology to combat growing fraud risk (e.g., Visa's and Mastercard's partnerships with Nitecrest for the manufacture of biometric fingerprint cards)
  • Decline of appetite for payday lending

Trends to watch

  • Competition from new entrants, keen to disrupt the credit card market by introducing new consumer finance alternatives and a smoother/richer retail experience
  • Increasing risks associated with card businesses:
    • Clampdown on "unfair" business practices (e.g., 40% reduction of fees for tourists using their cards in the EU)
    • Low tolerance for IT meltdowns and malfunctions resulting in loss of coverage/customer data

Our M&A forecast

The European consumer finance market is ripe for disruption. M&A activity is likely to experience an uptick as incumbents jostle to retain market share and remain competitive.

 

Other financial services—Publicly reported deals & situations

 

Healthy buyer appetite

Market highlight:

Card payments in Germany eclipse traditional cash-based payments for the first time in 2018—card payments accounted for 48.6% of total retail sales, overtaking the 48.3% of cash payments*

Private equity/Venture capital:

  • Brightly Ventures: Participation in successful £4 million Venture funding round for Kaching Retail (May 2019)
  • FinTech Collective: Participation in successful US$8 million Series A funding round for Anyfin (May 2019)
  • Finch Capital: Participation in successful US$14 million Series B funding round for Twisto (May 2019)
  • Blenheim Chalcot: Participation in successful US$32.8 million Series C funding round for Salary Finance (April 2019)
  • LMK Industri: Participation in successful €48 million Seed funding round for Bynk (February 2019)

Trade consolidators:

  • Paylate: Acquisition of AmmoPay (January 2019)
  • NVM Private Equity and Maven Capital Partners: Participation in successful £7 million Series A funding round for Mojo Mortgages (February 2019)
  • Celeres Investments: Participation in successful £3.5 million Series A funding round for Jaja Finance (January 2019)
  • ING Ventures: Participation in successful US$14 million Series B funding round for Twisto (May 2019)

Strategic investors:

  • Bankinter: Acquisition of Avantcard Ireland (June 2019)
  • Mastercard: Acquisition of Vyze (April 2019)
  • J.P. Morgan: Launch of 'My Chase Plan' (March 2019)

 

New entrants

  • China UnionPay: European debit and credit card JV with Tribe Payments (June 2019)
  • JCB International: European joint licensing agreement with Viva Wallet (May 2019)
  • Marqeta: Expansion into Europe through customer relationships with Morning, Yapeal, Aplazame and Auka (April 2019)
  • Apple: Launch of Apple Card and credit card/Apple Wallet JV with Goldman Sachs (February–March 2019)
  • Jaja Finance: Successful £3.5 million Series A funding round, led by Celeres Investments (January 2019)

 

Payday lenders—had their day?

Acquisitions:

  • Kruk: Acquisition of Wonga Poland (May 2019)

Disposals:

  • Provident Financial: Disposal of 53,018 shares by Invesco Asset Management (March 2019)

 

Increasing operational risks— regulatory scrutiny

  • Mastercard: Reduction by 40% of fees for tourists using their cards in the EU to settle European Commission probe (April 2019)
  • Visa: Reduction by 40% of fees for tourists using their cards in the EU to settle European Commission probe (April 2019)

 

Combatting growing fraud risk

  • Nitecrest: Partnerships with Visa and Mastercard for manufacture of biometric fingerprint card (May 2019)
  • Gemalto: Biometric fingerprint card JV with Combatting NatWest (April 2019)

 

Wider market influence—new regulatory burdens

  • Diebold Nixdorf: Merger of Diebold Nixdorf and Diebold Holding Germany Inc. & Co. (May 2019)

 

 

 

 

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2019 White & Case LLP

 

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