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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

Payments

Financial institutions M&A sector trends: payments — H1 2019 and outlook for H2 2019

Insight
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9 min read

Current market

  • Consistent, very high activity levels

We are seeing

  • Demand from keen investors:
    • Trade consolidators—seeking scale, integrated offerings and complementary bolt-ons
    • Financial sponsors—seeking buy-and-build opportunities
    • Established banks—re-entry into the payments arena (e.g., BBVA, Bankia, RBS, etc.)
  • New market entrants, including 'data giants' expanding capabilities (e.g., Facebook's launch of WhatsApp payments)
  • Scrutiny of market foreclosure impact of deals (e.g., Visa/Earthport, Fiserv/First Data Corp, PayPal/ iZettle, etc.)

Key drivers

  • High cash flow and asset/regulatory capital-light business models continue to attract financial sponsors—Advent International tops the leader board with c. 30 deals
  • Market consolidation:
    • Building scale and geographical reach (e.g., card processors seeking merchant processing capabilities, creating integrated merchant processing platforms, etc.)
    • Acquiring bolt-on capabilities (e.g., point-of-sale finance)
  • Acquiring new technology:
    • Processing efficiency—lowering operating costs
    • Product differentiation—response to rising customer expectations on usage experience and instant transactions
    • Advanced data analytics—unlock potential of customer data
  • Fending off competition from:
    • New entrants/Fintechs—supercharged by PSD2
    • Banks—re-entrants, with deep pockets and network leverage to scale rapidly

Trends to watch

  • Fewer global but fully integrated service providers, combining payments infrastructure and lending capabilities (e.g., Paypal, FIS, Fiserv, Square, etc.)
  • Government intervention in M&A to preserve the sanctity of regional payments infrastructure (e.g., Deutsche Bundesbank's support for a pan-European platform)

Our M&A forecast

Very high levels of M&A activity to continue, notwithstanding high asset valuations. Investor confidence fuelled by growing consumer demand for mobile payments—growth is expected at a rate of 33% p.a. between 2019 and 2026.

 

Other financial services—Publicly reported deals & situations

 

High appetite and deep pockets

In Q4 2018, payments M&A registered the fastest quarter-on-quarter growth across the financial services sector*
 
Mobile Payments Market is expected to grow at an annual rate of 33% between 2019 and 2026, reaching US$457 billion by 2026**

In 2018, approximately 50% of UK adults used mobile banking and 1 in 10 now chooses to live a near-cashless life***

Private equity:

  • Brightly Ventures and Luminar Ventures: Participation in successful €1.2 million Seed funding round for Open Payments Europe (May 2019)
  • Stripes: Participation in successful US$56 million Series B funding round for Pleo (May 2019)
  • SoftBank: Acquisition of €900 million in bonds, convertible into 5.6% of equity in Wirecard (April 2019)
  • Adams Street Partners and Salesforce Ventures: Participation in successful £75 million Series E funding round for GoCardless (February 2019)
  • Ant Financial: Acquisition of WorldFirst (February 2019)
  • AnaCap: Heidelberger Payment's acquisition of Universum Inkasso (January 2019)

Banks:

  • Allied Irish Banks: JV with First Data Corp. for acquisition of Payzone (April 2019)
  • TBC Bank: Acquisition of LLC Inspired/Payme (April 2019)

Governments:

  • Saudi Arabia: Real-time payments system JV with Vocalink (April 2019)
  • Nemzeti Bank: Launch of domestic commercial banking instant-payment system (January 2019)

 

Scaling up of market players

Market highlight:

Financial services technology company FIS has joined forces with digital payments platform Worldpay. The US$43 billion acquisition is the biggest deal ever in the international payments sector

Deal highlight:

  • White & Case advised Nets, a market leader in the payments industry, on its acquisition of Dotpay/eCard and strategic alliance with Przelewy24
  • White & Case advised a syndicate of banks including Barclays, J.P. Morgan and Goldman Sachs, as joint global coordinators, and Bank of America, EFGHermes and Numis, as joint bookrunners, on Finablr's £1.2 billion LSE Main Market IPO

IPOs:

  • Finablr: LSE Main Market IPO raised £306 million (May 2019)
  • Nexi: Borsa Italiana IPO raised US$2.3 billion (April 2019)

Mergers:

  • BPay & Pingit: Merger (March 2019)
  • Nets & Concardis Payment Group: Merger (January 2019)
  • BS PAYONE & Ingenico Group: Merger (January 2019)

Acquisitions:

  • PayU: Acquisition of Iyzico (June 2019)
  • Nuvei: Acquisition of SafeCharge (May 2019)
  • EML Payments: Acquisition of Flex-e-Card (May 2019)
  • First Data Corp.: Acquisition of Payzone, through JV with Allied Irish Banks (April 2019)
  • Stripe: Acquisition of Touchtech Payments (April 2019)
  • Visa: Acquisition of Earthport (April 2019)
  • First Data Corp.: Acquisition of ayCash (March 2019)
  • FIS: Acquisition of Worldpay (March 2019)
  • EVO Payments: Acquisition of Way2Pay (March 2019)
  • WorldFirst: Acquisition of CurrencyVue (March 2019)
  • ClearCourse: Acquisition of Clear Direct Debit (January 2019)
  • Ingenico: Acquisition of Paymark (January 2019)
  • Nets: Acquisition of Dotpay/eCard (January 2019)

Equity investments:

  • PayPal: Strategic equity investment in Tink (June 2019)
  • Mastercard: Minority equity investment in Polski Standard Płatności/Blik (May 2019)
  • Visa: Minority equity investment in and strategic partnership with Bankable (May 2019)
  • Mastercard: Acquisition of 10% of Automated Banking Services and US$300 million cornerstone equity investment in Network International (March–May 2019)

Vertical integration/point-ofsale lending:

  • Mastercard: Acquisition of Vyze (April 2019)
  • Heidelberger Payment: Acquisition of Universum Inkasso (January 2019)
  • Paylate: Acquisition of AmmoPay (January 2019)

JVs:

  • SIA: Blockchain interoperability JV with Quant Network (June 2019)
  • Bankingblocks: Neo "challenger" banking solution JV with Pannovate (June 2019)
  • PelicanPay: Online e-commerce merchant payment services JV with Starling Banking (June 2019)
  • Mphasis: Automation, transparency and efficiency solutions JV with Bitfury Group (May 2019)
  • Total Processing: Crypto-payment solution JV with PumaPay (May 2019)
  • Currencycloud: Stock trading payments JV with Evarvest (May 2019)
  • JCB International: European joint licensing agreement with Viva Wallet (May 2019)
  • Prepaid Financial Services: UK smartwatch payments JV with Garmin Pay (May 2019)
  • Banking Circle: Cross-border travel payments JV with Ixaris (April 2019)
  • Tink: Data-driven payment solution JV with Mash (April 2019)
  • Visa: DLT-based international corporate payments platform JV with FIS (April 2019)
  • Alipay: Chinese tourism JV with Barclaycard (March 2019)
  • Nets: Establishment of strategic alliance with Przelewy24 (February 2019)

New licences/territories/ business lines:

  • Swift: Testing of real-time cross-border payments through Eurosystem's Target Instant Payment Settlement (May 2019)
  • Stripe: Launch of Stripe Billing in Europe (April 2019)
  • Visa: Launch of Visa Next digital payment platform (April 2019)
  • J.P. Morgan: Launch of Sepa Instant in Europe (April 2019)
  • Alipay: Securing of Luxembourg e-money licence (January 2019)

 

New entrants

Deal highlight:

  • White & Case advised Emirates Telecommunications Corporation on its joint venture with Noor Bank to establish a state-of-the-art dirhamdenominated payment wallet business
  • White & Case advised Pollinate International in connection with its partnership with RBS to create NatWest Tyl, a new, innovative solution for merchant acquiring

Launch of new operators/ products:

  • CellPoint Mobile: Successful £11 million funding round led by Toscafund Asset Management (June 2019)
  • Bill.com: Launch of Intelligent Business Payments Platform (May 2019)
  • CULedger: Launch of CU Pay (May 2019)
  • Facebook: Launch of payments service through WhatsApp (May 2019)
  • ACI Worldwide: Launch of UP Real-Time Payments solution (May 2019)
  • Thunes: Successful US$10 million Series A funding round, led by GGV Capital (May 2019)
  • Checkout.com: Successful US$230 million Series A funding round, led by Insight Partners and DST Global (May 2019)
  • Paysend: Launch of Paysend Link, enabling cross-border payments using mobile numbers (May 2019)
  • Billon Solutions: Securing e-money licence from Polish Financial Supervision Authority (April 2019)
  • Resolve: Launch of automated B2B eCommerce financing solution platform (April 2019)

Banks re-join the foray:

  • BBVA: Launch of global mobile payment platform (May 2019)
  • Collector: Online bank payments JV with Trustly (May 2019)
  • Bankia: Waiap strategic partnership with Sipay (May 2019)
  • RBS: NatWest Tyl JV with Pollinate International (May 2019)
  • Noor Bank: Dirham-denominated payment wallet JV with Emirates Telecommunications Corporation (January 2019)

 

Brexit

  • TransferWise (Belgium): Brexit Application for Belgian money-transfer licence (January 2019)

 

Regulatory intervention

  • Deutsche Bundesbank (Germany): Support for a pan-European mobile payments platform to compete with American and Chinese BigTech (April 2019)

 

 

 

 

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© 2019 White & Case LLP

 

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