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FIFO, PAIN POINTS and NEW RULES: Three Things You Need to Know About Financial Technology M&A
FIFO, PAIN POINTS and NEW RULES: Three Things You Need to Know About Financial Technology M&A
That’s the question savvy owners and investors in the Financial Information and Technology (“FinTech”) arena are asking themselves…or should be. Many are concluding that, after sitting on the sidelines waiting to see what unfolds on the field, it’s time to get back in the M&A game.
There are lots of technical explanations why this is true, but the three most compelling are these:
1. Based on historical patterns, the pace of mergers & acquisitions across all our information and technology markets is about to accelerate dramatically. Sharp drops in M&A activity are always followed by equally sharp spikes.
2. Pricing has firmed up to the point where valuations based on revenue and EBITDA multiples are consistent with historical norms–neither inflated to bubble-induced heights nor softened to post-burst lows.
3. Significant pent-up demand among cash-rich buyers who are eyeing a diminished pool of willing targets creates a seller’s market.
While these conditions apply to high-quality information and technology companies across a wide spectrum of sectors, there are additional considerations that are unique to the FinTech marketplace.
First In, First Out
The financial markets were the first to feel the full impact of the global economic slowdown, with the liquidity crisis and credit crunch affecting financial services businesses first and most dramatically. M&A activity among these companies declined faster and further, and we forecast they’ll be the first to recover. We’re already seeing signs of robust life in the mortgage industry and the capital markets, two areas most squarely impacted by the deep and lingering recession.
Pain Points Drive Deals
Change is a good thing for M&A. When markets change, participants suffer as they react to the altered conditions. As the pain point gets higher they become open to new solutions. Small, entrepreneurial firms with specific solutions to complex problems can benefit disproportionately from such adversity, and we’re seeing a nice pickup in business with the resultant attractiveness to large strategic acquirers who are always looking to meet their customers’ needs with new products and services.
Among the new offerings that are attracting the most interest are lower-risk financial products to replace the more speculative trading and lending schemes that drove the markets so powerfully, and helped lay them so low, in the past two years.
Regulation Creates Opportunities
Unless you’re living under a rock, you know that the financial markets can expect to see wholesale regulatory changes at a global, national and industry level. Such changes, which cannot be avoided by market participants, create huge opportunity for publishers, solution providers and consultants to help institutions quickly understand the changes and become compliant with them. Providers of niche and specialized products and services can expect to be acquisition targets for buyers.
The intense debate over health insurance is shining a light on insurance practices in general. This new focus may lead to a sea change in the way insurance providers operate, with the possibility of erasing state-by-state barriers in favor of national standards, and the regulation of business practices that currently escape the scrutiny of federal watchdogs.
It makes sense that FinTech, more than any other information segment, is poised for substantial change. Once only about 12% of total U.S. GDP in the 1950’s, financial services grew to roughly 22% in 2006/7. With the current consolidation, the industry should level off at around 15% to 17%, preserving its rank among the nation’s largest industrial sectors.
These FinTech-specific conditions, combined with the favorable macro trends in the overall information and technology market discussed earlier, create fertile ground for both private sellers and portfolio investors looking to gain liquidity through a sale of a business. However willing the universe of buyers, their prevailing sense of caution will temper any impulse toward inflated pricing; we do not expect valuation multiples to increase appreciably from current levels over the next two to three years.
Propio Language Services a technology-enabled interpreting and translation service provider, announced the acquisition of Telelanguage, a Portland-based enterprise language service provider specializing in remote interpreting.
Telelanguage is a Portland-based enterprise language service provider specializing in remote interpreting. Founded in 1991, Telelanguage has a history of providing high-quality remote interpretation services for over 350 languages.
Founded in 1998, Propio Language Services is an industry leader in over-the-phone interpretation, video remote interpretation, in-person interpretation, and document translation services.
Narrow Gauge Capital, a private equity firm, has completed the acquisition of a majority interest in Inco-Check, a provider of software and end-to-end quality control, specialty audit, compliance, and reporting services for mortgage and consumer lenders and servicers.
Inco-Check is a provider of software and end-to-end quality control, specialty audit, compliance, and reporting services for mortgage and consumer lenders and servicers. IC leverages QC Ally, its proprietary, web-based platform to support all GSE, regulatory agency, and investor requirements.
Narrow Gauge Capital, based in Boston, is a private equity firm controlled by Adam Doctoroff and Travis Metz. NGC pursues buyouts and recapitalizations in growth-oriented businesses with strong management teams.
StoicLane, a long-term growth platform making investments in the Finance, Insurance & Real Estate (“FIRE”) verticals, has closed on a majority stake in appraisal management company Lender’s Valuation Services (“LVS”). LVS delivers appraisal management services to lenders, banks, mortgage brokers, credit unions, and financial institutions.
Lender’s Valuation Services (LVS) is a national appraisal management company delivering industry leading appraisal management services to lenders, banks, mortgage brokers, credit unions, and financial institutions. Founded in 2014, LVS is headquartered in California.
StoicLane is a Chicago-based long-term growth platform making controlling and strategic minority investments in the Finance, Insurance & Real Estate (“FIRE”) verticals. The firm works closely with its portfolio companies by harnessing the power of data and technology.
Gridiron Capital, LLC, an investment firm, is pleased to announce that one of its portfolio companies, Class Valuation, has acquired Pendo Management, LLC. Based in Kansas City, Missouri, Pendo offers a differentiated appraisal process with dedicated client success teams, automated workflows and experienced appraisers in unique coverage markets.
Pendo Management, LLC is a nationwide, technology-enabled appraisal management company serving the residential mortgage industry. The Company’s solutions assist residential mortgage lenders in managing the process of procuring property valuations required for the origination of mortgage loans.
Headquartered in Troy, Michigan, Class Valuation is a leading nationwide appraisal management company. The Company's proprietary technology enhances every aspect of the home valuation process and leverages advanced analytics and data to assess appraisal accuracy and regulatory compliance.
Class Valuation, a leading appraisal management company in the US, has acquired Synergy Appraisal Services, an appraisal management company providing valuation services for residential and commercial lenders. Synergy offers an array of residential valuations services for first and second mortgage production, forensic review, litigation, and more.
Synergy Appraisal Services is an appraisal management company providing high quality valuation services for residential and commercial lenders. Synergy offers an array of residential valuations services for first and second mortgage production, forensic review, litigation, loan QC, and more.
Headquartered in Troy, Michigan, Class Valuation is a leading nationwide appraisal management company. The Company's proprietary technology enhances every aspect of the home valuation process and leverages advanced analytics and data to assess appraisal accuracy and regulatory compliance.
ATTOM, curator of the nation's premier property database, announced it has acquired GeoData Plus, the leading application for in-depth property research, valuation, and prospecting tools. GeoData's clients are appraisers, real estate agents, investors, mortgage companies and tax reduction professionals.
GeoData Plus is a data source used by thousands of real estate professionals throughout the states of New York and New Jersey. GeoData's clients are appraisers, real estate agents, investors, mortgage companies and tax reduction professionals.
ATTOM Data Solutions provides premium property data to power products that improve transparency, innovation, efficiency, and disruption in a data-driven economy. The ATTOM Data Warehouse fuels innovation in many industries through flexible data delivery solutions.
Broadridge Financial Solutions, Inc., a global Fintech leader, announced that it has acquired the cloud-based Execution Compliance and Surveillance Service (ECS) assets from Jordan & Jordan. The solution provides a combination of surveillance and regulatory reporting as well as compliance consulting capabilities for US regulations.
The cloud-based Execution Compliance and Surveillance Service (ECS) assets from Jordan & Jordan provide a combination of surveillance and regulatory reporting as well as compliance consulting capabilities for US regulations.
Broadridge Financial Solutions, a global Fintech leader with over $4.5 billion in revenues, provides the critical infrastructure that powers investing, corporate governance, and communications to enable better financial lives.
Gresham Technologies plc specializes in providing real-time solutions for data integrity and control, banking integration, and payments and cash management, has announced its agreement to acquire post-trade automation specialists, Electra Information Systems, Inc.
Electra provides post-trade operations workflow solutions and data services for reconciliation, trade matching, settlement and fee billing to global institutional buy-side firms. Firms can quickly scale to business demands and gain value from their patented technology across the post-trade process.
Gresham Technologies plc is a leading software and services company that specializes in providing real-time transaction control and enterprise data integrity solutions. Gresham’s Clareti software platform is designed to provide financial institutions with complete certainty in their data processing.
