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Financial institutions M&A: Sector trends - July 2020

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July 2020

We highlight the key European M&A trends in the first half of 2020, and provide our insights into the outlook for M&A moving forward.

Introduction

The COVID-19 pandemic has ravaged the European financial services sector, sending shockwaves across the FIG M&A landscape. It is no surprise that M&A volumes have plummeted. Yo-yoing valuations, buyer conservatism and the promise of "cheaper" stressed / distressed opportunities have compounded a cavernous rift between seller and buyer expectations. Reality is slowly sinking in—as the possibility of a v-shaped economic recovery becomes increasingly bleak, concern is growing around whether IFRS 9 loss estimation is much more than educated guesswork.

But all is not lost. The resilience of established financial institutions, fortified in the decade since the global financial crisis, agility afforded by digitalisation and evolution of customer interaction with financial services have contributed to M&A hotspots which burn bright amidst market gloom.

In this edition, we hone in on those hotspots and highlight the key M&A trends across Europe and the UK. Focusing on Banks, Fintech and Other Financial Services, we also provide our insights on the outlook for M&A in H2 2020 and beyond.

Key highlights from H2 2019 include the following:

Banks: Surge in strategic M&A, post-easing of lockdowns, as pent-up deal-making prowess is unleashed.
Fintech: Financial sponsors demand more bang for buck, as equity valuation volatility wreaks havoc for funding rounds.
Asset/Wealth Management: Differing bank prerogatives drives deal-making— some European banks tag-out from non-core business lines, while others tag-in for stable returns.
Payments: Lockdown utilisation levels encourage cross-border operators to scale-up and private equity investors to pile-in.
Stock Exchanges/Clearing Houses/Trading Venues: Clash of the pan-European titans—M&A plans signalled by LSE, Euronext and Deutsche Börse.
Brokers/Corporate Finance: Thinning of the herd continues as "traditional" brokers struggle to remain profitable amidst encroachment by Bulge Bracket and disruption by fintech.
Consumer Finance: A time of temperance as COVID-19 covenant breach forbearance, payment holiday and repossession deferral relief measures take their toll.
Specialty Finance/Marketplace Lending: Panacea or plague—what will the true impact of accreditation for government-backed loan schemes be?

European financial services M&A trends

Europe's post-GFC leaner and better-capitalised banks are put to the test by the COVID-19 pandemic

by Patrick Sarch

Banks with stronger balance sheets capitalise on M&A opportunities amidst COVID-19 market turmoil, while their weaker peers consolidate to survive.

Read 24 min. article

As the technicolour gloss of unicorns fade, investors attempt to back the right horses

by Hyder Jumabhoy and Guy Potel

H1 2020 heralds an entirely new era for fintech, a market segment which scarcely existed at the time of the global financial crisis. Many founders and investors, who have enjoyed a bull run since 2015, have had their first taste of the bear markets which banks endured in the years following 2008.

Read 45 min. article

Asset/Wealth Management

by Prof. Dr. Roger Kiem and Martin Järvengren

Differing bank prerogatives drive deal-making—-some European banks tag-out from non-core business lines, while others tag-in for stable returns.

Read 6 min. article

Payments

by Jan Jensen and Leonardo Graffi

Lockdown utilisation levels encourage cross-border operators to scale-up and private equity investors to pile-in.

Read 7 min. article

Stock Exchanges/Clearing Houses/ Trading Venues

by Dr. Jost Kotthoff and Darragh Byrne

Clash of the pan-European titans—-M&A plans signalled by LSE, Euronext and Deutsche Börse.

Read 3 min. article

Brokers/Corporate Finance

by Franck De Vita and Hugues Mathez

Thinning of the herd continues as "traditional" brokers struggle to remain profitable amidst encroachment by Bulge Bracket and disruption by fintech.

Read 3 min. article

Consumer Finance

by Daniel Turgel and Henrik Wireklint

A time of temperance as COVID-19 covenant breach forbearance, payment holiday and repossession deferral relief measures take their toll.

Read 4 min. article

Specialty Finance/Marketplace Lending

by Ashley Ballard and Jonathan Rogers

Panacea or plague—-what will the true impact of accreditation for government-backed COVID-19 loan schemes be?

Read 4 min. article

Payments

Financial Institutions M&A sector trends: Payments — H1 2020 and outlook for H2 2020

Insight

13 July 2020

7 min read

Jan Jensen |

Leonardo Graffi

Lockdown utilisation levels encourage cross-border operators to scale-up and private equity investors to pile-in.

Overview

Current market

Very high activity levels

We are seeing

Market participants scale-up:
- Global behemoths resort to partnerships (>8 new partnerships for Visa, including with Safaricom, Qatar National Bank, Currencycloud, Fold, Rapyd, Flutterwave) and seek organic expansion into new territories (e.g., Mastercard's and AmEx's launches of Chinese bank card clearing businesses)
- Cross-border players favour scale through mergers (e.g., Worldline / Ingenico, Far Point / Global Blue, etc.)
- Unicorns opt for vertical as well as horizontal expansion (e.g., Klarna's acquisitions of Moneymour and Nuji)
- New entrants stockpile growth capital (>15 successful funding rounds)
Private equity pile-in—through participation in funding rounds as well as direct acquisitions (e.g., Goldfinch Partners' acquisition of 80% of Vesta)

Key drivers/challenges

Market consolidation:
- Building scale and scope to deliver ubiquitous accessibility for customers
- Technology bolt-ons which promise enhanced operational and cyber resilience
- Vertical integration to deliver POS offerings (e.g., Klarna's acquisition of Moneymour and Visa's equity investment in ChargeAfter)
- Alliances with leading regional banks (e.g., sale by CaixaBank of 51% of its Electronic Money business to Global Payments)
- Payments giants—seeking to diversify (e.g., Square's acquisition of Verse)
Financial sponsors ride the wave:
- Growing customer demand, especially in the wake of COVID-19
- Confidence buoyed by early birds reaping rich rewards (e.g., Mercury UK's disposal of 8.8% of Nexi, Atos' disposal of 13.1% of Worldline, etc.)
Following global trade—acquisitions focussed on securing payment rails and a merchant base mapping onto global trade trends (e.g., Chinese merchants seeking access to EU/UK/US e-commerce platforms)

Trends to watch

Regional mega-mergers (e.g., rumoured deals like Germany's Paydirekt / Giropay and Italy's SIA / Nexi)
Banks preferring partnerships in the payments arena

Our M&A forecast

High levels of M&A activity to continue, as European countries hurtle towards cashless societies following the onset of the COVID-19 pandemic. Payments infrastructure is now an economy-critical financial utility

Publicly reported deals & situations

Market highlight:

Worldline joined the global elite as a new powerhouse in merchant services, point-of-sales and payment acceptance with product line revenues of approximately €2.5 billion, through its acquisition of Ingenico

The COVID-19 pandemic has given a boost to digital payments in Germany with e-commerce revenues jumping 18% year-on-year to €6.8 billion (S&P Global – May 2020)

Russians made 50.4% of total transactions with cashless instruments in Q4 2019, up 4.5% on the same period in 2018 (S&P Global – February 2020)

High appetite and deep pockets

Private equity—acquisitions / equity investments:

BlackRock: Minority equity investment in Trustly (June 2020)
Goldfinch Partners: Acquisition of 80% of Vesta (May 2020)
Tencent: Acquisition of 5% of Afterpay (May 2020)
Mucker Capital, 99 Tartans, Madrona Venture Group and Oregon Venture Fund: Participation in US$7.7 million Seed funding round for Sila (April 2020)
VC New Vision 3: Participation in €2.5 million Venture funding round for Paynetics (March 2020)
VC New Vision 3: Participation in €1.5 million Venture funding round for phyre (March 2020)
Hambro Perks and Fair by Design: Participation in £2.9 million Seed funding round for SteadyPay (January 2020)
Tencent, Open CNP, XAnge and New Alpha: Participation in €40 million Series B funding round for Lydia (January 2020)

Institutional—acquisitions / equity investments:

Standard Bank:
- Acquisition of 40% of Payments24 (April 2020)
- Acquisition of 49% of Elavon Mexico (February 2020)
Deutsche Bank and Commerzbank: Acquisition of 11.1% of Paydirekt (January 2020)
BNP Paribas and Siam Commercial Bank: Participation in US$80 million Series E funding round for Currencycloud (January 2020)

Ultra high-net-worth / private investment groups:

Christian Rasmussen: Acquisition of Valitor's Danish operations (May 2020)

Scaling-up of market players

Deal highlight:

White & Case advised Nets Denmark, one of Europe's leading payment services providers, on its acquisition of Poland-based Centrum Rozliczeń Elektronicznych Polskie ePłatności

Mergers:

Worldline & Ingenico: Merger (February 2020)
Far Point & Global Blue: Merger (January 2020)

Acquisitions:

Planet: Acquisition of 3C Payment (June 2020)
TPAY: Acquisition of Payguru (June 2020)
TAS Group: Acquisition of Infraxis (June 2020)
Klarna: Acquisition of Nuji (May 2020)
Lock Trust: Acquisition of Axxa Fintech Solutions (April 2020)
Worldline: Acquisition of majority stake in GoPay (April 2020)
Rapyd: Acquisition of Korta (April 2020)
Global Payments: Acquisition of 51% of CaixaBank Electronic Money (April 2020)
SoFi: Acquisition of Galileo Financial Technologies (April 2020)
Nets: Acquisition of Polskie ePlatnosci (March 2020)
Accuity: Acquisition of Apply Financial (March 2020)
Salt Pay: Acquisition of 63.5% of Borgun (March 2020)
Small World Financial Services: Acquisition of MoneyGlobe (February 2020)
Foreign Currency Direct: Acquisition of Earthport's corporate FX unit (February 2020)
MTS Group: Acquisition of 15% of Smart Wallet (January 2020)
Visa: Acquisition of Plaid (January 2020)

JVs:

Visa: Debit cards JV with Emirates NBD (June 2020)
Visa: Payments cards JV with Permanent TSB (June 2020)
Mastercard: Israel fintech and cyber innovation JV with Enel X (May 2020)
Mastercard: International money transfer JV with Ithmaar Bank (May 2020)
Visa: Payments product development JV with Safaricom (April 2020)
Paysafe: Payments JV with Gala Technology (April 2020)
iZettle: Remote payments and courier JV with Stuart (April 2020)
Visa: Sudan payments JV with Qatar National Bank (April 2020)
Visa: Cross-border cloud payments and innovation JV with Currencycloud (May 2020)
Visa: Customer bitcoin rewards JV with Fold (April 2020)
PayTabs: Egypt payments JV with EFG Hermes (April 2020)
Mastercard: Contactless payments JV with Phos (April 2020)
Monese: Cash deposits JV with PayPoint (February 2020)
Visa: Fintech expansion JV with Rapyd (February 2020)
Mastercard: Electronic SME payments JV with SumUp (February 2020)
AliExpress Russia: Payments system JV between Russian Direct Investment Fund, AliPay, Mail.Ru Group, USM and MegaFon (January 2020)
Visa: Payments JV with Flutterwave (January 2020)
Worldpay: Payments JV with Flutterwave (January 2020)

Vertical integration:

Heidelpay: Equity investment in Tillhub (June 2020)
Square: Acquisition of Verse (June 2020)
Visa: Equity investment in GoodData (May 2020)
Klarna: Acquisition of Moneymour (February 2020)
Visa: Equity investment in ChargeAfter (February 2020)

New technologies:

PayPal: Follow-on equity investment in Tink (June 2020)
Visa: Participation in US$10 million Series A funding round for Railsbank (April 2020)

New licences / territories / business lines:

Jingle Pay (UAE): Launch in UAE (May 2020)
TransferWise (UAE): Launch in UAE (April 2020)
PayTabs (Egypt): Launch in Egypt (April 2020)
Kutxabank (Spain): Launch of remote payment system to facilitate electronic money collection (April 2020)
Dzing (UK): Launch of international currency transfers app for travellers, students and freelancers (April 2020)
Network International (UAE): Launch of WeChat Pay in UAE (March 2020)
Mastercard (China): Launch of Chinese bank card clearing business (February 2020)
Visa (Point-of-sale lending): Equity investment in ChargeAfter (February 2020)
American Express (China): Launch of Chinese bank card clearing business (January 2020)

Stockpiling growth capital:

Apexx Global: Successful US$8 million Series A funding round, led by Forward Partners (June 2020)
Trustly: Minority equity investment by BlackRock (June 2020)
Primer: Successful £3.2 million Seed funding round, led by Balderton Capital (May 2020)
Ziina: Successful US$850,000 pre- Seed funding round, led by Class 5 Global (May 2020)
Banked: Successful £2.35 million Seed funding round, led by Force Over Mass Capital (May 2020)
Afterpay: US$390 million equity investment by Tencent (May 2020)
Modulr: Successful £18.9 million Venture funding round, led by Highland Europe (May 2020)
Airwallex: Successful US$160 million Series D funding round, led by ANZi Ventures and Salesforce Ventures (April 2020)
AMNIS: Successful Series A funding round, led by Spicehaus Partners (April 2020)
Mamo Pay: Successful US$1.5 million Seed funding round, led by Global Founders Capital (April 2020)
Sila: Successful US$7.7 million Seed funding round, led by Madrona Venture Group and Oregon Venture Fund (April 2020)
Paynetics: Successful €2.5 million Venture funding round, led by VC New Vision 3 and Bulgarian American Credit Bank (March 2020)
phyre: Successful €1.5 million Venture funding round, led by VC New Vision 3 and Bulgarian American Credit Bank (March 2020)
Revolut: Successful US$500 million Series D funding round, led by Technology Crossover Ventures (February 2020)
Klarna: Successful US$200 million Venture funding round, led by Commonwealth Bank of Australia (January 2020)
Currencycloud: Successful US$80 million Series E funding round, led by Visa, BNP Paribas, SBI Group, Siam Commercial Bank and International Finance Corp (January 2020)
Flutterwave: Successful US$35 million Series B funding round, led by e.ventures and Greycroft (January 2020)
SteadyPay: Successful £2.9 million Seed funding round, led by Hambro Perks and Fair by Design (January 2020)
Lydia: Successful €40 million Series B funding round, led by Tencent (January 2020)

Early birds cash out

Mercury UK: Disposal of 8.8% of Nexi (May 2020)
SIX: Disposal of 6% of Worldline (April 2020)
Equistone Partners Europe: Disposal of MoneyGlobe (February 2020)
Atos: Disposal of 13.1% of Worldline (February 2020)
Clessidra, Bain Capital and Advent: Disposal of 7.7% of Nexi (January 2020)

Banks opt for partnership model

Emirates NBD: Debit cards JV with Visa (June 2020)
Permanent TSB: Payments cards JV with Visa (June 2020)
Volksbank and Raiffeisenbank: Partnership with Apple Pay in Germany (April 2020)
Ithmaar Bank: International money transfer JV with Mastercard (May 2020)
UBS: Partnership with Apple Pay (April 2020)
UniCredit: Payments processing JV with equensWorldline (February 2020)
Swedbank: Direct payments JV with SIA (February 2020)
Standard Chartered: Global e-commerce JV with Assembly Payments (February 2020)
Barclays: Online payments JV with BigCommerce (February 2020)
Crédit Agricole and Crédit: Mutuel Partnership with Apple Pay in France (February 2020)
Barclays: Innovation and product development JV with Visa (February 2020)

Click here to download Financial services M&A experiences shortness of breath in H1 2020 (PDF)

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Financial institutions M&A: Sector trends - July 2020

Introduction

European financial services M&A trends

Europe's post-GFC leaner and better-capitalised banks are put to the test by the COVID-19 pandemic

As the technicolour gloss of unicorns fade, investors attempt to back the right horses

Asset/Wealth Management

Payments

Stock Exchanges/Clearing Houses/ Trading Venues

Brokers/Corporate Finance

Consumer Finance

Specialty Finance/Marketplace Lending

Payments

Overview

Current market

We are seeing

Key drivers/challenges

Trends to watch

Our M&A forecast

Publicly reported deals & situations

Market highlight:

High appetite and deep pockets

Private equity—acquisitions / equity investments:

Institutional—acquisitions / equity investments:

Ultra high-net-worth / private investment groups:

Scaling-up of market players

Deal highlight:

Mergers:

Acquisitions:

JVs:

Vertical integration:

New technologies:

New licences / territories / business lines:

Stockpiling growth capital:

Early birds cash out

Banks opt for partnership model

Contacts

Service areas