Introducing the EDC M&A database
All those regular newsletter readers will know that EDC has been monitoring and commenting on M&A activity in the payments industry for a number of years now. It is an area of great interest to us as a firm, and our thinking is supported by dozens and dozens of deals we have worked on over the years.
But well over a year ago, we recognised that M&A activity is not just limited to the odd big acquisition or merger in this space. It is not being defined by a public listing of a payments business. These deals might drive the frequently quoted M&A value in payments and, for reference, the banking and payments sector witnessed M&A deals worth $365 billion in 2022, according to Global Data. In addition to these big deals, there is a large number of smaller deals and investments from seed funding to Series E. Usually, these deals involve smaller companies that in some cases might develop into large, established payments businesses. Whilst others might just fail or be consolidated into a larger company.
Keeping track of these smaller deals is important in many ways. It does not just round off the picture of M&A in payments as a whole; more importantly, it provides a quick and immediate glance at what investors are looking for. Even ignoring valuations and actual investment amounts, it is the identification of segments within the payment industry that attract investors' interest and therefore money that is valuable for us as industry experts.
So earlier this year, we started tracking M&A activity and investments in the payment space, creating our own database. After approx. 3 months, here is a first snapshot of what we are seeing.
Although we have not seen any mega deals this year to date, we still recorded 23 acquisitions in the last three months. Most of which did not disclose terms; the biggest deal we saw was Ripple’s acquisition of Swiss-based Metaco in the crypto space with a value of $250m. There is a lot of rumour in the industry about potential mega deals – such as ACI changing ownership, PayU possibly divesting some parts of its payment assets, publicly-listed Network International potentially changing ownership / going private, or PayPal considering the sale of Xoom, its money transfer business. But even if these large deals were not to materialise, at the current run rate, we would still be looking at 100 acquisitions in the payment space during 2023. That is still a significant number.
On the funding side, we see the expected curve of a higher frequency of deals for Series A and a continuous reduction as funding rounds mature. The largest Series D / E funding round was Mizuho Bank’s $270m raise for Kredivo, a BNPL player in SE Asia. Most of the earlier funding rounds are of much smaller value and very frequently combined with the provision of a credit / debt facility.
Taking a look at some of the specific segments of the payment industry, where deals are being finalised, can also be of interest. Fintech was the ‘busiest’ segment with 35 deals, but this might well be related to fintech being a fairly generic term covering a wide range of different aspects. Within that segment, we saw deals in the BaaS / Embedded Payments space, Open Banking but also covering very specific propositions around Personal Financial Management, Pension Payments or Kids Money Management. However, two industry sub-segments stood out within Fintech. Firstly, there is crypto (crypto custody services, crypto wallets), where we noticed a number of smaller deals, but the biggest sub-segment was Data Analytics. Companies offering data analytics (or AI-based) propositions around lending, authentication, financial inclusion / credit history builders, etc. saw the largest influx of investments; most of which, interestingly at a Series A / B stage.
Other than Fintech, there are four other sub-segments in which we saw more than 13 deals over the last 3 months: B2B, Banking, Digital Payments and Payment Technology.
- B2B covered everything from receipt automation, payroll solutions, underwriting, SME lending / working capital solutions to automation of corporate spend
- Banking saw deals on banking platforms / BaaS, PFM or p2p solutions
- Digital Payments is more about BNPL, marketplaces, PSPs, digital wallets or payment orchestration
- Payment Technology covers fraud prevention, cybersecurity or wider payment platforms
- NOTE: We do understand that it can be difficult to classify one company into one of these segments esp. if there are different facets to a company proposition, but we tried to be as consistent as possible
Whilst the POS Terminals segment has only seen a very few deals, pretty much all of them were in the hot SoftPOS space.
Are there any surprises in these early findings? Not really, as the hot investment segments are very closely aligned to the sections of the payment industry that generate a lot of headlines. But this is just a very first and early snapshot, and we aim to provide one or two regular updates throughout the year to keep you abreast of M&A developments.
The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).