Report finds Surge in UK Tech M&A Activity Positive for Fintech in 2021

https://thefintechtimes.com/report-finds-surge-in-uk-tech-ma-activity-positive-for-fintech-in-2021/
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A new report by technology-focused investment bank ICON Corporate Finance has revealed that despite Covid causing a 50% year-on-year collapse in Tech M&A activity in the second quarter, a remarkable bounce-back led to a spate of M&A activity in businesses focussed on Digital Transformation, resulting in a near-record final quarter, boding well for 2021.

The report, which analyses some of the largest and most interesting fintech deals in 2020, and which looks at trends in the tech sector, saw M&A activity rally, up 6% in Q4 compared 2019, which had itself been a record year for Tech M&A activity.

In the fintech sector consolidation in financial information led to ever-larger deal sizes. This included the announcement that S&P Global was to acquire IHS Markit for £34bn or 9x revenues. This beat the £24bn acquisition of Refinitiv by London Stock Exchange in 2019.

Overseas Appetite to Grow

ICON believes that Digital Transformation across all industry sectors, including fintech, will continue to accelerate, driving further M&A activity in 2021, boosted in no small part by appetite from overseas investors – a major force in the 2020 bounce-back. Cross-border deals rose to a record high in 2020, accounting for 48% of all UK deals.

“Normally in economic downturns, overseas buyers tend to pull up the draw-bridge and re-focus. However, that was far from the case in 2020,” said Brian Parker, Co-Founder, Head of M&A at ICON Corporate Finance and author of the report.

Alongside the mainstay of buyers from the US, 2020 saw a significant widening of interest in UK tech companies from Australia, Scandinavia and Europe as buyers like Byggfakta (Scandinavia) ELMO (Australia) and MessageBird (Holland) boosted activity. It will be interesting to see if this is a trend that continues in 2021.

“There is simply a tsunami of cheap funding looking for a home,” said Parker. “Many used these funds to plug the hole created by COVID, while others used the funds for M&A. As a result, there were 4,700 global tech M&A deals in 2H20, up 4% YoY. That has also pushed up valuations to frothy levels with two of the largest US deals achieving more than 30x revenues.”

Private Equity Funded Acquisitions on The Rise

The report identifies that private equity acquisitions were one of the key factors behind buoyant tech M&A activity in 2020. This is likely to continue in the year ahead.

“Total VC/PE backed acquisitions accounted for 23% of all deals in 2020 – similar to 2018 and 2019,” said Parker. “However, with interest rates remaining low and significant funds raised yet to be spent, further M&A activity can be expected. We have seen a wave of PE-backed buy-and-build deals in the past few years and that is unlikely to change in 2021.”

Notably, all the most acquisitive UK buyers in 2020 were PE owned. The report looks at ClearCourse Partnership, Juniper Education, Advanced, Access Group, Iris and Civica, among others, who are all looking for new technology in their respective sectors.

Major Fintech Deals

Within the fintech sector, major deals included the Broadridge acquisition of FundsLibrary, a leader in fund document and data dissemination, from Hargreaves Lansdown. The cost of £53m equates to an impressive 7x revenues or nearly 30x profits.

In the payments space, the headlines were taken by mega-deals from Worldine and Nexi. In the UK, payment solutions firm Paypoint acquired card payments and terminal leasing businesses Handepay and Merchant Rentalsenabling it to reach into new SME sectors – including groceries, hospitality, food services and auto trade. At £70m the valuation was over 4x revenues.

Australian-listed Bravura acquired Delta Financial Systems, which provides technology to power complex pensions administration supporting the administration of SIPPs and SSASs, for up to £23m – 3.8x revenues for the business that is growing 20-30%. Delta. Bravura is on a roll, having acquired two companies in 2019 – FinoComp, extending microservices offering to a broader wealth management market, and Midwinter which has developed financial planning software ‘AdviceOS’.

https://thefintechtimes.com/report-finds-surge-in-uk-tech-ma-activity-positive-for-fintech-in-2021/