Fintech/Analysis/ Fintech M&A in an economic downturn: Key takeaways from the Sifted Summit There are some bargains to be had right now in European fintech. But where does it make most sense to acquire? By Amy O'Brien 11 October 2022 Hiroki Takeuchi, Jaidev Janardana and Sonya Iovieno and the Sifted Summit Hiroki Takeuchi, Jaidev Janardana and Sonya Iovieno and the Sifted Summit \Fintech Is it finally European insurtech’s moment in the sun? By Amy O'Brien 14 February 2023 Fintech/Analysis/ Fintech M&A in an economic downturn: Key takeaways from the Sifted Summit There are some bargains to be had right now in European fintech. But where does it make most sense to acquire? By Amy O'Brien 11 October 2022 It’s a cold fundraising environment out there for European fintechs. Valuations are dropping, deals are taking longer and even being scrapped, and companies that have burned through capital fast are redrawing business plans and laying off staff. Naturally, people are now talking about fintech mergers and acquisitions (M&A). So far this year, there have been 190 fintech acquisitions in Europe, versus 241 in 2021. According to Dealroom data, the biggest acquirors of European fintechs this year have been Software company Visma (4) and insurance robo-broker +Simple (3), followed by Apex Group, Carta, Cennox, Luko and Sambla Group (all with 2). Sifted hears several smaller fintechs are scouting around for buyers, and larger companies with healthier balance sheets are beginning to snoop around for bargains. We chatted to European fintech’s brightest stars at the Sifted Summit about their latest thinking on M&A. When will fintech M&A really start picking up? Sonya Iovieno, head of venture & growth banking at Silicon Valley Bank “One of the first things we started to see from around March this year was a huge wave of companies at Series B to Series D — which were quite liquid already and had raised equity in the last 12 months — coming to us and asking for debt facilities essentially as hunting lines to prepare for M&A. So there is definitely a wall of fat on the scaleup company side, not just the VC side, ready to make acquisitions.” “We’ve already seen them starting to pick up a little bit. But there’s definitely a timing factor here in terms of a meeting of minds between founders that are ready and willing to have those negotiations about acquisitions and those that are actively out looking. There are lots of conversations happening for sure.” “The crunch is going to come when the founders that are starting to run out of capital realise that they can’t raise another equity round. So they need to start talking to companies that can help them keep on building their companies, rather than equity. I expect that to happen from about six to nine months away, with companies that didn’t raise last year first.” Neobanking is crowded. Why is now a good time for M&A within the sector? Jaidev Janardana, CEO at Zopa “When you look at the neobank sector, you see a lot of names. But if you look deeper, they all do lots of different things — every neobank has carved its own path.” “So herein lies the potential opportunity for acquisitions. Because there are lots of neobanks out there that have very complimentary propositions. And things can come together.” “Banks have differentiated quite a bit in terms of those that have figured out a profitable business model, and those that haven’t. The latter will be keener for acquisitions, but less attractive. Those that have figured out how to be profitable can take advantage of this opportunity to really diversify their business and become a fuller service.” “And naturally, we’d prefer to look at those that have figured out a strong product-market fit and have an active customer base.” What are you looking for in potential acquisitions? Jaidev Janardana, CEO of Zopa “We are looking to accelerate through acquisitions now. The thing that’s most interesting for us are platform companies that have a lot of customers but haven’t quite figured out how to monetise them — where we feel we can help with their unit economics. So definitely companies that can give us an active customer base. “And second, in the last 15 years, we’ve built great capability in lending and savings. So we recognise how hard it is to build lending capability. So to get lending capability that’s outside our core unsecured consumer space is of great interest to us. Lending platforms, SME lending — those are what we’re looking for.” GoCardless: Why did you acquire Nordigen in July rather than going it alone? Hiroki Takeuchi, CEO of GoCardless “There are a lot of different players in the open banking space, it’s quite crowded. When we first went into open banking, we initially thought we would partner more than bring in-house. But then we realised there’s a wide variety of capabilities in the market that varied by geography and by bank. “It was clear that in the long-term there will be commodification of this area, but in the shorter term, there’s a lot of differentiation. So for us to create the best experience, it was clear we needed to develop that capability. It became a question of do we build that ourselves, or do we go and acquire. So the main deciding factor was how quickly we can get to market — it made sense to acquire. “Then when we looked around the market, there are fewer players than you’d think that have that deep connectivity and have done it rapidly at scale. We thought Nordigen had an impressive team, they’d done an amazing job of building the connectivity in a short space of time, and had built strong technical foundations. “Actually, our acquisition plan pre-dated anything that’s going on in the markets right now, and was more a strategic bet on something we’ve been thinking about for a few years.” Which fintech subsectors do you think are ripest for M&A? Fintech founder that preferred not to be named “When it comes to acquisitions, payments and open banking are going to be huge. How GoCardless is playing it is extremely smart. “Then definitely neobanks. If they have a big customer base and a solid niche, because customers aren’t cheap, cross-selling products is a smart area. But there are big neobanks, and then there are tiny new banks and not much in between. So I think it might be more new market entry or core tech acquisitions that we’ll see in the near future.” What stage companies do you think we’ll see do the most M&A? Simon Miller, cofounder of Scalable Capital “I think we’ll see smaller intra-European acquisitions, between companies that are younger than five years, rather than large mergers. “Those companies that have been eating into their cash reserves, and were more dependent on their next raise than those that were nearing profitability. “I also think we’ll see large public companies with big cash reserves that can make strategic plays and take on more risk by acquiring smaller private competitors.” At which stages and subsectors do you think we’ll see the most M&A? Esha Vatsa, senior investor at Forward Partners “In the early days you can survive on capital from early investors, but it takes a while to get to a stage where you’re in a stable enough state to do acquisitions, in my opinion. “I think it takes at least five years for companies to get to a scale where it’s interesting to start acquiring — I’m very much thinking unicorn status and above. “And while we’re not seeing so many yet, I think we’ll see them begin next year if the market stays down. “In terms of subsectors, I’ve got my eyes on payments. It’s crowded, and there are lots of companies building on top of each other with competing products. Payments infrastructure companies add a lot of value to the businesses that they sell to, at the very least cost savings on a transaction basis. “So there are synergies to be realised — but which companies actually realise those is still TBC.” Amy O’Brien is Sifted’s fintech reporter. 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