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As Valuations Plunge, Fintechs Become Acquisition Targets for U.S. Banks

Reuters | Saeed Azhar and David French | Nov 18, 2022

Stock prices top US public fintechs - As Valuations Plunge, Fintechs Become Acquisition Targets for U.S. Banks

Financial technology companies are increasingly becoming acquisition targets for traditional U.S. banks as rising interest rates and falling valuations crimp their expansion.

  • The valuations of listed financial technology firms have plunged 70% in 2022, analysts at Jefferies Group said in a note last week. In the same period, the valuations of banks in the S&P 500 are down 33%, while valuations for the S&P 500 (.SPX) are down 23%, according to data from Refinitiv IBES.
  • M&A and Partnerships: The decline presents an opportunity for Main Street banks to buy companies and beef up their technology for digital banking, online payments and other financial services and diversify beyond lending.
    • Fintech transactions may be easier to clinch compared with bank mergers, which have been delayed by scrutiny from regulators.
    • "Management teams and boards have redirected some of their focus to non-bank opportunities," said Brennin Kroog, a managing director in the financial institutions group at Lazard. Those include digital tools for wealth or treasury management and point-of-sale financing.

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  • Dry: "With valuations coming down, and the IPO and SPAC markets all but dried up at the moment, there's certainly a lot more room for acquisitions by traditional banks into fintech," said Dan Goerlich, a partner at PwC who focuses on financial deals.
  • Cutting costs:  Startup founders could come under more pressure to do deals as it gets more expensive to run their companies. Investors have become intensely focused on rising funding costs.

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