Fintech M&A in an economic downturn: Key takeaways from the Sifted Summit

It’s a cold fundraising environment out there for European fintechs. Valuations are falling, deals are taking longer and even being scrapped, and companies that have burned through capital quickly are redrawing business plans and laying off employees.

Naturally, people are now talking about fintech mergers and acquisitions (M&A). So far this year, there have been 190 fintech acquisitions in Europe, up from 241 in 2021. According to Dealroom data, the biggest acquirers of European fintechs this year have been software company Visma (4) and insurance robo-broker +Simple (3), followed by of Apex Group, Carta, Cennox, Luko and Sambla Group (all with 2).

Sifted hears several smaller fintechs are scouting for buyers, and larger companies with healthier balance sheets are starting to snoop around for bargains.

We spoke to European fintech’s brightest stars at the Sifted Summit about their latest thoughts on M&A.

When will fintech M&A really start to pick 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 Series B to Series D companies – which were already quite liquid and had raised equity in the last 12 months – coming to us asking for debt facilities mainly as hunting lines to prepare M&A. So there’s definitely a wall of fat on the scaleup company side, not just the VC side, ready to do acquisitions.”

“We have already seen that they are starting to pick up a bit. But there is definitely a time factor here when it comes to a meeting between founders who are ready and willing to negotiate acquisitions and those who are actively looking. There are probably a lot of conversations going on.”

– The crisis comes when the entrepreneurs who start to run out of capital realize that they cannot raise a new round of shares. So they need to start talking to companies that can help them continue to build their companies, instead of equity. I expect that to happen from about six to nine months away, with companies that didn’t pick up last year first.”

Neobanking is overcrowded. Why is now a good time for mergers and acquisitions in the sector?

Jaidev Janardana, CEO of Zopa

“When you look at the neobank sector, you see a lot of names. But if you look deeper, they all do a lot of different things – each neobank has carved its own path.”

“So here lies the potential opportunity for acquisitions. Because there are a lot of neobanks out there that have very free propositions. And things can tie together.”

“The banks have differentiated quite a lot in terms of those who have figured out a profitable business model and those who haven’t. The latter will be more interested in acquisitions, but less attractive. Those who 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 prefer to look at those who have found a strong product-market fit and have an active customer base.”

What do you look for in potential acquisitions?

Jaidev Janardana, CEO of Zopa

“We’re looking to accelerate through acquisitions now. What’s most interesting to us are platform companies that have a lot of customers but haven’t quite figured out how to monetize them – where we feel we can help with their unit economics. So definitely companies that can give us an active customer base.

“And secondly, over the past 15 years, we have built a large capacity in lending and savings. So we realize how difficult it is to build lending capacity. So it is of great interest to us to get loan opportunities that are outside of our core unsecured consumer area. Lending platforms, SME loans – that’s what we’re looking for.”

GoCardless: Why did you buy Nordigen in July instead of going it alone?

Hiroki Takeuchi, CEO of GoCardless

“There are many different players in the open banking space, it’s quite crowded. When we first went into open banking, we initially thought that we would collaborate more than bring in-house. But then we realized that there is a wide range of functions in the market which varied by geography and bank.

– It was clear that in the long term there will be commodification of this area, but in the shorter term there is a lot of differentiation. So in order for us to create the best experience, it was clear that we needed to develop that capability. It became a question of whether we build it ourselves, or whether we go and acquire it. So the main deciding factor was how quickly we can get to market – it made sense to buy.

“When we looked around the market, there are fewer players than you would think that have the deep connectivity and have done it quickly at scale. We thought Nordigen had an impressive team, they had done a fantastic job of building the connectivity on short time, and they had built a strong technical foundation.

“In fact, our acquisition plan was ahead of anything going on in the markets right now and was more of a strategic effort on something we’ve been thinking about for a few years.”

Which fintech sub-sectors do you think are ripe for mergers and acquisitions?

Fintech entrepreneur who preferred not to be named

“When it comes to acquisitions, payments and open banking are going to be huge. How GoCardless plays that is extremely smart.

“Then definitely neobanks. If they have a large customer base and a solid niche, because customers are not cheap, cross-selling products is a smart area. But there are large neobanks, and then there are tiny new banks and not much in between. So I think there may be more new market entry or core technology acquisitions that we will see in the near future.”

Which stage companies do you think we will see do the most mergers and acquisitions?

Simon Miller, co-founder of Scalable Capital

“I think we will see smaller intra-European acquisitions, between companies that are younger than five years, rather than big mergers.

“Those companies that have eaten into their cash reserves and were more dependent on the next increase than those that were approaching profitability.

“I also think we will see large public companies with large cash reserves that can make strategic plays and take more risks by acquiring smaller private competitors.”

At which stages and sub-sectors do you think we will see the most M&A?

Esha Vatsa, Senior Investor at Forward Partners

“In the early days, you can survive on capital from early stage investors, but it takes a while to get to a stage where you’re in a stable enough state to make 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 about unicorn status and higher.

“And while we’re not seeing that many yet, I think we’ll see them starting next year if the market holds down.

“When it comes to sub-sectors, I have opened my eyes to payments. It is crowded, and there are many companies that build on each other with competing products. Payment infrastructure companies add a lot of value to the businesses they sell to, at least cost savings on a transaction basis.

“So there are synergies to be realized – but which companies actually realize that is still TBC.”

Amy O’Brien is Sifted’s fintech reporter. She writes Sifted’s fintech newsletter and tweets from @Amy_EOBrien.