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Financial institutions M&A: Sector trends - February 2020

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February 2020

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

Introduction

As the relationship between the bloc and the United Kingdom transitions into a new era, financial services M&A across the European landscape responds to the weight of change. Change heralds opportunity for some and disruption for others.

To bring you this 6th edition of our biannual European Financial Services M&A Trends reports, we have analysed more than 1,600 deal and situations announced in H2 2019, including many that White & Case has directly advised on.

In this edition, we analyse inorganic investment strategies and highlight the key M&A trends across Europe and the UK. Focusing on Banks, Fintech and Other Financial Services, we also provide Focusing on Banks, Fintech and Other Financial Services, we also provide our insights on the outlook for M&A in H1 2020 and beyond.

Key highlights from H2 2019 include the following:

  • Banks: Strategic M&A takes centre stage—we have seen 40 bank consolidation deals in H2 2019
  • Fintech: Availability of growth capital drives stratospheric investment levels, with London overtaking New York as the world’s #1 hub for fintech investments
  • Asset/Wealth Management: Industry consolidation continues at pace, spurred by MiFID II fee transparency requirements, rising operating costs and growing competition
  • Payments: Mega-deals, including Global Payments/Total System Services, Fidelity National/Worldpay and PayPal/iZettle, dominate headlines
  • Stock Exchanges/Clearing Houses/Trading Venues: The search for the world’s premier listing venue continues—data aggregation and analytics capabilities could set competitors apart?
  • Brokers/Corporate Finance: Household names turn to M&A as pressure mounts from fintechs offering commission-free trading services
  • Consumer Finance: Financial sponsors see opportunities to back new entrants targeting under-serviced customer segments, including gig economy workers and solopreneurs
  • Specialty Finance/Marketplace Lending: The UK Financial Conduct Authority’s new P2P rules add to pressures faced by UK platforms

fig m&a introduction

European financial services M&A trends

Re-shaping for the new decade

Entry into the new decade brings promise—banks finally have the tools to shake off the remaining shackles of the global financial crisis and embrace deal-making to re-shape for the future.

bank vault door

Unicorns trail-blaze the London financial services landscape

British thoroughbreds dominate the downs—London has overtaken New York as the world's #1 hub for fintech investments. Unicorns are not mythical creatures on City streets…

circuit board

Asset/Wealth Management

Industry consolidation continues at pace. Rigorous fee transparency requirements under MiFID II, rising operating costs and growing competition from WealthTech/robo-advisers are forcing managers to combine.

credit cards

Payments

Megadeals, including Global Payments/Total System Services, Fidelity National/Worldpay and PayPal/iZettle, have dominated headlines, but both deal values and volumes keep smiles on deal-makers' faces.

banknotes

Stock Exchanges/Clearing Houses/ Trading Venues

The search for the world's premier listing venue continues—could data aggregation and analytics set competitors apart?

safety deposit boxes

Brokers/Corporate Finance

Household names turn to M&A as market disruption from fintechs offering commission-free trading continues.

circuit board

Consumer Finance

Financial sponsors see opportunities to back new entrants targeting under-serviced customer segments, including gig economy workers and solopreneurs.

stock market display

Specialty Finance/Marketplace Lending

The UK Financial Conduct Authority's new P2P rules add to pressures faced by UK platforms.

Financial Institutions M&A: Sector trends - June 2019

Payments

Financial institutions M&A sector trends: payments — H2 2019 and outlook for 2020

Insight
|
9 min read

Megadeals, including Global Payments/Total System Services, Fidelity National/Worldpay and PayPal/iZettle, have dominated headlines, but both deal values and volumes keep smiles on deal-makers' faces.

 

Overview

Current market

  • Very high activity levels

We are seeing

  • Market participants scale up:
    • Established participants favour mergers, acquisitions, JVs and large-scale cross-border collaboration projects
    • First movers advance into new business lines and territories (e.g., PayPal's Chinese payments licence, Stripe's cash advancement service, Nets' Hungarian RealTime24/7 JV, etc.)
    • Europe's unicorns raise megabucks (e.g., Klarna's US$460 million Venture funding round, Rapyd's US$100 million Series C funding round, etc.)
    • Newer entrants stockpile expansion capital from financial sponsors as well as banks (e.g., OPay, Paysend, Payconiq, etc.)

Key drivers/challenges

  • Market consolidation:
    • Building scale to compete and conquer (e.g., Global Payments/Total System Services, Fidelity National/Worldpay, PayPal/iZettle, etc.)
    • Quest for complementary technologies (e.g., Visa's acquisitions of Verifi and Payworks)
    • Defensive M&A strategies (e.g., Elavon's acquisition of Sage Pay)
  • Investors with deep pockets believe in the depth of the payments market:
    • Financial sponsors—both late-stage PE (e.g., KKR's acquisition of Heidelpay) and early-stage VC (e.g., GVA Capital's participation in Paysend's £8.5 million Series B funding round)
    • Banks—attempting to recapture lost ground

Trends to watch

  • Banks continuing to make a comeback into the payments arena
  • Fewer global but fully integrated service providers (e.g., FIS, PayPal, Global Payments, etc.), combining in-store and online offerings
  • Regulatory scrutiny of payments processing, targeting continued innovation, market competition and consumer safety

Our M&A forecast

High levels of M&A activity to continue, bolstered by financial sponsor confidence and growing consumer demand for convenient, on-demand and safe payment technologies.

 

Publicly reported deals & situations

Scaling-up of market players

Non-banks now account for ¼ of the institutions offering payment services or payment instruments, up from 14% in only 6 years (Finextra–November 2019)

Payments processing is driving the fintech venture market, with 3 mega-transactions accounting for US$87 billion in deal value during H1 2019 (Finextra–August 2019)

Market highlight:

20 European banks collaborate on the Pan European Payment System Initiative, a payment system to rival Visa, Mastercard and BigTech

Deal highlight:

White & Case represented Nets, a leader in the payments industry, on its acquisition of Finnish software developer Poplatek 

Mergers:

  • Payroc, Payscape, NXGEN and BluePay Canada: Merger (October 2019)
  • Global Payments & Total System Services: Merger (September 2019)
  • Payr & Hudya: Merger (July 2019)
  • Fidelity National & Worldpay: Merger (July 2019)
  • PayPal & iZettle: Merger (June 2019)

Acquisitions:

  • Nets: Acquisition of Poplatek (December 2019)
  • Nexi: Acquisition of Intesa Sanpaolo's retailers' payment business (December 2019)
  • Payoneer: Acquisition of optile (December 2019)
  • EML Payments: Acquisition of Prepaid Financial Services (November 2019)
  • Visa: Acquisition of 20% of Interswitch (November 2019)
  • Wirecard: Acquisition of AllScore Payment Services (November 2019)
  • Elavon: Acquisition of Sage Pay (November 2019)
  • Ebury: Acquisition of Frontierpay (October 2019)
  • Mastercard: Acquisition of Nets' account-to- account payments business (August 2019)
  • EML Payments: Acquisition of PerfectCard (July 2019)
  • Worldline: Acquisition of remaining 7% in equensWorldline (July 2019)
  • Mastercard: Acquisition of Transfast (July 2019)
  • Visa: Acquisition of Verifi (July 2019)
  • Visa: Acquisition of Payworks (July 2019)
  • Access Group: Acquisition of Eazy Collect (June 2019)
  • PPRO: Acquisition of allpago (June 2019)
  • PayU: Acquisition of Iyzico (June 2019)

Funding rounds:

  • OPay: Successful US$120 million Series B funding round (November 2019)
  • Cardlay: Successful €9 million Series B funding, led by SEB Bank (November 2019)
  • Stripe: Participation in US$100 million Series C funding round for Rapyd (October 2019)
  • Visa and Mastercard: Participation in US$250 million Series C funding round for Plaid (September 2019)
  • Klarna: Successful US$460 million Venture funding round, led by Dragoneer, CBA and BlackRock (August 2019)
  • Paysend: Successful £8.5 million Series B funding round, led by GVA Capital (July 2019)
  • Payconiq: Successful €20 million funding round, led by Belfius, BNP Paribas, ING and KBC (July 2019)
  • SumUp: Successful €330 million debt funding round, led by Bain Capital Credit (July 2019)
  • Currencycloud: Successful £32 million Series E funding round, led by Goldman Sachs (July 2019)

JVs:

  • Visa: Africa payments JV with MFS Africa (December 2019)
  • Finablr: Cross-border remittances JV with Alipay (November 2019)
  • GoCardless: Recurring overseas payments JV with TransferWise (November 2019)
  • Danske, Handelsbanken, Nordea, OP Financial, SEB and Swedbank: P27 payments collective (October 2019)
  • Mail.Ru, Alipay, RDIF, MegaFon and USM: Russian payments JV (October 2019)
  • Finastra: DLT cross-border payments JV with Ripple (October 2019)
  • Mastercard: Cross-border payments JV with R3 (September 2019)
  • Visa, Samsung and First Data: Software-based point-of-sales JV (September 2019)
  • Apple Pay: Credit card JV with Goldman Sachs (August 2019)
  • Wirecard: Digital payments JV with SisalPay (July 2019)
  • SumUp: European SME electronic payment JV with Mastercard (July 2019)
  • Optal: Commercial banking payments JV with Lloyds Bank (July 2019)
  • Swish: In-store payments JV with Nets (July 2019)
  • P27: Real-time, cross-border payment infrastructure JV with Mastercard (June 2019)
  • Bottomline Technologies: Real Time Payments Express Service partnership with Starling Bank (June 2019)
  • Wirecard: Cashless payments partnership with KaDeWe (June 2019)

Collaborations:

  • Sibs API Market: Launch of Sibs' API platform which brings together 24 financial institutions (August 2019)
  • Bluecode, ePassi, momo pocket, Pagaqui, Pivo, Vipps and Alipay: Development of unified QR code to promote digital payment interoperability for European travellers (June 2019)
  • Global Payments and Ingenico: Launch of joint international innovation programme (June 2019)

New licences/territories/business lines:

  • Paysend: Launch of money transfer service to Turkey (December 2019)
  • PayPal: 1st foreign business to secure Chinese payments licence (September 2019)
  • Stripe: Launch of corporate credit cards offering (September 2019)
  • Stripe: Launch of cash advancement service (September 2019)
  • Apple: Apple Card JV with Goldman Sachs (August 2019)
  • Xoom: Launch across 32 new European markets (July 2019)
  • Nets: Hungarian RealTime24/7 JV with GIRO Zrt. (July 2019)
  • Revolut: Launch of Apple Pay in 12 new countries across Southern Europe, CEE and Balkans (June 2019)
  • Wirecard: Launch of boon Planet (June 2019)
  • Volante Technologies: Launch of Single Euro Payments Area (June 2019)
  • WorldRemit: Launch of UK/Kenya payment services capabilities for SMEs and employees (June 2019)

Start-up support:

  • Visa: Launch of Visa Partner, an online access portal for fintechs (September 2019)

 

High appetite and deep pockets

Private equity/Venture capital:

  • Durable Capital Partners: Equity investment in Rapyd (December 2019)
  • Oak HC/FT: Participation in US$100 million Series C funding round for Rapyd (October 2019)
  • Toscafund Asset Management: Equity investment into Lemon Way (October 2019)
  • General Catalyst, Sequoia and Andreessen Horowtiz: Participation in US$250 million Series F funding round for Stripe (September 2019)
  • KKR: Acquisition of Heidelpay (August 2019)
  • Dragoneer and BlackRock: Participation in US$460 million Venture funding round for Klarna (August 2019)
  • GVA Capital: Participation in £8.5 million Series B funding round for Paysend (July 2019)

Banks:

  • US Bancorp: Elavon's acquisition of Sage Pay (November 2019)
  • SEB Bank: Participation in €9 million Series B funding for Cardlay (November 2019)
  • RBS: Participation in £60 million Series A funding round for Pollinate (November 2019)
  • Intesa Sanpaolo: Acquisition of minority stake in MatiPay (October 2019)
  • Belfius, BNP Paribas, ING and KBC: Participation in €20 million funding round for Payconiq (July 2019)
  • Nordea: Equity investment in Mondido (June 2019)

 

Overarching prerogatives

Encouraging competition:

  • UK Competition Markets Authority: Investigation of competition concerns relating to Bottomline and EPG merger (October 2019)
  • Bank of England: Grant of access to BoE overnight accounts, to level playing field with commercial banks (June 2019)

Encouraging safety:

  • European Banking Authority: Strong Customer Authentication standards required by 31 December 2020 (October 2019)
  • UK Payment Systems Regulator: 'Confirmation of Payee' implementation deadline for UK High Street lenders set for 31 March 2020 (August 2019)

Encouraging innovation:

  • European Commission: Brussels roundtable on development and availability of cross-border instant payments (June 2019)
  • UK HM Treasury: Long-term review of UK's payments landscape and regulatory framework (June 2019)

 

Click here to download 'Financial services M&A finished strong in 2019 ' PDF

 

 

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© 2020 White & Case LLP

 

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