US firms are eyeing up European fintech ‘bargains’ in 2023, lured in by the strength of the dollar, lower European valuations, and some fintech jewels likely up for grabs.
Last year, Silicon Valley-based software provider Carta snapped up UK fintechs Capdesk and Vauban while US private investment firm Republic completed its acquisition of UK crowdfunding platform Seedrs. These two deals followed hot on the heels of US bank JP Morgan picking up UK digital wealth management platform Nutmeg in 2021.
Experts think the trend of US firms acquiring UK and also European fintech will see an uptick next year.
Carta CEO Henry Ward recently commented that “we’re not going to stop thinking about M&A” adding “there’s a lot of cool things going on, both in the UK and continental Europe”.
The expected jump in US firms hoovering up fintech across the Atlantic is down to several factors which are opening US executives’ eyes wider to the prizes on offer.
One of these factors is likely the strength of the US dollar against Sterling and Euro (the dollar is up around 20 per cent against the two currencies since the start of the year meaning UK and European equity is now arguably cheaper), a trend that will likely continue next year.
Other drivers include Europe’s growing global reputation as a fintech powerhouse, lower fintech European valuations vis-à-vis US fintechs, and US raiders believing global consolidation is inevitable in many fintech sectors.
“”It’s anticipated that the UK and Sweden will see continued investor interest, following their success in significantly outperforming the rest of Europe in the most critical areas.”
With some plumb European fintech likely up for grabs in 2023, experts believe the raid on Europe could come from either rival US fintechs, traditional US banks or private equity firms.
The Fintech Times spoke to several executives to get their take on whether 2023 would see US firms targeting the UK and Europe to acquire ”some bargains”.
Will 2023 see a rise in US firms buying European fintech firms?
Chris Gledhill, an independent fintech advisor, said: “I think 2023 will see more US firms buy European fintechs. 2022 saw valuation corrections across the tech industry, including fintech.
“There are bargains to be had. The consolidation of fintech players is also starting to reveal market leaders who will likely go on to dominate their respective areas of financial services for a decade to come.
“US firms with a sufficient ‘war chest’ would look hungrily at the European fintech market. This is coupled with the drawbridge being pulled up in other global markets like China and India where US acquisitions are difficult to achieve or local regulators restrictive in their nature.”
Lucas Timberlake, general partner at Fintech Ventures Fund, added: “I am not sure that we will see much more cross-border M&A in 2023, given macroeconomic uncertainty.
“If it does occur, it will likely be on an opportunistic basis (e.g. companies running out of capital/being purchased from insolvency) versus strategic/growth minded basis. I predict investment and M&A activity will start to pick up again in 2024, but it will not surpass 2021 record levels anytime soon.”
While Nicole Perry, strategy director for digital business growth, at the fintech consultancy 11FS, said: “If we think about the factors driving the influx of US investment into European fintech, it starts to unpick why this has been happening, and indicates a continuing and potentially escalating trend into 2023.
“First and foremost, UK-denominated equity is arguably cheaper now than in previous years. The strength of the dollar against the pound has driven down the nominal price of investments (which are already historically valued lower than US opportunities) and that’s not something that’s going to change dramatically soon. US investors get a lot of bang for their buck.
“Having said that, it’s a trend that’s been growing over a period of time and not one that’s solely influenced by price. Europe has an edge on fintech and has seen some of the globe’s most successful countries borne out of the region.
“A supportive regulatory environment and strong talent pipeline has produced a cohort of fintech entrepreneurs eager to make a difference. This, combined with advanced payments infrastructure (in comparison to the US), simpler cross-border collaboration and a spirit of unity has made scaling not only appealing, but achievable.”
If we are to see more US firms make European acquisitions, which fintech sectors will they likely be in?
Alexander said: “We will likely see this occur in capital markets and lending businesses, where there are significant synergies between US and UK/European markets. However, I don’t expect this activity to be robust in 2023.”
Perry said: “Despite recent controversy, the blockchain and crypto sector will continue to attract support. Having gone from a global adoption of 2.5 per cent to rapid growth of 24 per cent(Q1 2021) there is clear appetite from consumers to at least experiment with the technology.
“More importantly however, are the real-life use cases that are emerging that validate Web3 infrastructure and will in-turn, drive more interest and confidence in the sector.
“At 11:FS, we are hearing consistent talk of wealthtech development from both fintechs and banks. The face of wealth is changing, and the biggest players in the financial services market are not yet set to serve it.”
Which European markets do you think US companies are looking at? Is it the UK or are they looking right across Europe?
Alexander said: “I would predict that many US companies will be looking at UK businesses, as this is where we see most of the fintechs in Europe are being formed. For instance, London just overtook New York and San Francisco as the top city for fintech investment activity in 2022, with over $10billion invested. With that being said, I also believe that US firms will start paying closer attention to other European fintech hubs such as Paris, Berlin, and Stockholm.”
Perry said: “It’s anticipated that the UK and Sweden will see continued investor interest, following their success in significantly outperforming the rest of Europe in the most critical areas. We will also likely see US companies look to Estonia, who has the most startups per capita in Europe and a world-class track record in building unicorns.
“With a population of 1.3 million people who are incredibly digitally savvy and entrepreneurial, it won’t be surprising if we continue to see disruptive, valuable and committed investment opportunities crop up.”