Financial Technology M&A Update – December 2024

FinTech M&A Remains Strong, AI Draws Heightened Investment Appetite

Capstone’s latest Financial Technology (FinTech) Market Update reports that the FinTech sector has experienced significant disruption year to date (YTD) with the heightened adoption of artificial intelligence (AI) and machine learning (ML) technologies—a trend Capstone’s Head of FinTech & Services, David Francione, heard echoed while attending the 2024 Money20/20 conference. However, many sector participants have viewed the technology as a tool to augment human intelligence rather than an opportunity to fully substitute personnel.

Global merger and acquisition (M&A) activity in the FinTech sector has continued to exhibit strength, driven by the democratization, digitization, and globalization of the Finance ecosystem. FinTech M&A volume has risen 4.4% year-over-year (YOY) to 859 deals YTD. Although full-year 2024 dealmaking will likely fall short of 2021’s peak, further consolidation is expected as M&A has become a key strategic option for mature FinTech providers seeking to gain market share. AI-centric participants have gained heightened buyer attention in the FinTech M&A market as services providers look to augment human intelligence with streamlined processes, advanced analytics, and improved compliance solutions. Strategic buyers have continued to comprise the majority of FinTech M&A activity to date, led by private strategic acquirers vertically integrating competitors to gain scale. Public strategic buyer activity has risen 20.3% YOY through YTD as heightened revenue gains have bolstered public players’ available acquisition capital. Private equity (PE) acquisitions, exits, and fundraising in the space have all increased YOY through YTD, driven by limited partner (LP) demand for returns and an easing Private Credit market.

Global FinTech venture capital (VC) activity has continued to be challenged by a broader market correction in startup valuations, which has dampened sector participants’ ability to raise capital. Total capital invested in the FinTech sector by VC firms has declined 29.1% YOY to $63.4 billion YTD. The number of sector VC deals has also dropped to date, falling 5.2% YOY. However, sector participants with advanced technological offerings, such as AI, have continued to attract VC interest.

Private Capital markets activity in the FinTech sector has undoubtedly reflected heightened demand for AI capabilities. While VC firms have continued to invest in AI, the maturation and widespread adoption of the technology have increased strategic and financial buyers’ risk appetite for AI-centric FinTech businesses. Through YTD 2024, M&A and financing deals targeting AI-enabled FinTech providers have risen 55.3% and 5.4% YOY, respectively. Although fundamental utility has remained a key performance driver for many sector businesses, AI is expected to play an increasingly prominent role in the FinTech M&A and VC markets.

Also included in this report:

• Capstone’s FinTech Front Runners, a series of FinTech startups that have exhibited exceptional leadership and revenue growth.
• Key themes from the 2024 Money20/20 conference and how these are slated to impact M&A and VC markets in the sector.
• A global view of FinTech M&A activity with transaction volume broken out by continent.
• Why the average FinTech M&A multiple has held strong on a YOY basis.
• A breakdown of the most active FinTech acquirers by subsector.
• How participants in the Payments, Capital Markets & Wealth Technology, and Insurance Technology subsectors have utilized AI.

Capstone Partners’ Financial Technology Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the FinTech sector. Our team partners with leading mid-to-large sized businesses that serve growing end-markets.

For more information on the FinTech M&A trends featured in this report or to speak with one of our Financial Technology M&A Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today.