Investors in the financial services industry say they plan to acquire at least two fintech firms in 2019 as a measure to boost capacity amid fears of being left behind, according to a survey by Reed Smith in collaboration with Mergermarket.
The survey which features 100 corporate senior executives globally, found that more than half the banks and other financial institutions that responded to the survey (52%) plans making two or three acquisitions in the next 12 months, while 42 per cent expect to initiate four, five or more deals.
“There isn’t a significant financial services institution that isn’t already either a consumer or developer of fintech,” Herb Kozlov, partner at Reed Smith noted in a statement. “I think it is on the radar of every major institution because they are at a competitive disadvantage if they’re not as well positioned as their competitors to adopt new technologies,” Kozlov added.
Many Nigerian banks could fall under this description as they have become unrelenting in creating fintech products for their market and disrupting the disruptors.
In August, BusinessDay reported that some tech players have been approached by potential investors over merger and acquisitions. While these are yet to be confirmed, experts in the industry also believe that 2019 may be the year they make the announcement.
“I think there are too many startups chasing same problems in very small markets across Africa,” Oluyomi Ojo, co-founder of Printivo noted in a tweet. “The surest way to create the kind of unicorns people seek is to merge and create big companies instead of many small companies struggling to survive and chasing a very small market.”
The survey expects financial institutions to muster their substantial financial power as they survey mergers and acquisition opportunities in the next 12 months.
Nearly a third of the organisations plan to allocate $500 million or more to fintech investment during the period. This more than doubles the number of companies that allocated such large sums in 2016 and 2017. A further third say they are likely to allocate between $200 million and $500 million.
Two-thirds (67%) of private equity, venture capital and family respondents plan to make smaller investments – reflective of their relative size – within the range of $50 million and $200 million. With increasing appetite for fintech, more of the respondents are expected to allocate larger sums of investments over the next two years compared to the past 24 months.
In anticipation of tough contest from other dealmakers, some banks and financial institutions say they are willing to consider a single transaction valued between $50 million and $200 million. 21 per cent of respondents say they could go higher if it is a prize asset.
“These deals will naturally require careful planning to ensure smooth integration – particularly given the scope for culture clashes between large, traditional financial services and less mature, smaller startups, whose informal structures and autonomous working practices may not translate easily into larger institutions,” the authors of the survey noted.
The research also predicts a blurring of line between technologies innovations considered to be fintech and those that are not as they spread rapidly to other industries. Already this is being witnessed as distributed ledger gets adopted in healthcare, entertainment, media and advertising.
