Thoughts On The Fintech M&A Gold Rush
IHS Markit and Ipreo are both household names in our industry, although it’s strange to think that the general public have probably never heard of them. For years, these two financial data firms have been an important feature of the capital markets, part of the furniture, so to speak.
Although much larger than Origin in size and market penetration, these companies are our peers. So the announcement that IHS is buying Ipreo for $1.86bn certainly piqued our attention.
IHS’ purchase of Ipreo is facilitated via debt financing from HSBC, valuing the company at an effective 2019 forward adjusted earnings before interest, taxation, depreciation and amortisation ratio of 16 times. Advisors on the deal for IHS are Barclays and HSBC, whilst Goldman Sachs and Morgan Stanley acted as joint financial advisers to Ipreo. Blackstone and Goldman Sachs Merchant Banking jointly acquired Ipreo from KKR for $975m four years ago, and Ipreo has actually quadrupled in value since the KKR deal in 2011. So, this is a huge win all round.
What’s in it for IHS? The company is keen to drive growth in alternative investments, which currently account for a third of group turnover. It believes the acquisition will increase organic growth at its financial business from 4-6% annually to 5-7%. Indeed, Ipreo has a strong footprint in alternatives, and the company’s customers include some of the world’s largest PE and venture companies.
The deal is indicative of a wider trend towards increasing M&A activity in the fintech sector, with a flurry of recent transactions. PayPal and iZettle, Experian and Clearscore, Blackstone and Thomson Financial & Risk have all grabbed headlines, and the list goes on. There were 884 publicly announced fintech deals in 2017, and 346 deals have been executed so far in 2018.
Recent corporate activity is a very positive signal for the growth and development of the fintech industry, especially the capital markets vertical in which we live and work. It clearly demonstrates that offerings are maturing and becoming entrenched within the architecture of investment banking. Fintech is no longer a fringe movement that threatens incumbents. It’s a catalyst that’s accelerating progress and building the future of capital markets.
Further, customers (investment banks, borrowers, investors, even other data vendors) now truly acknowledge the value of technology and data as critical business drivers and are willing to pay big money to accelerate growth in this area. Corporate finance activity is a symptom of the excitement (and anxiety) that accompanies the rapid progress of fintech.
Finally, customers are increasingly placing value on seamless technology experiences, rather than having to contend with a fragmented hodgepodge of tools and service providers. Here, integration is key, and technology providers who can provide it will win big going forward. This is why we’re building Origin with a completely open architecture, with API connectivity that provides our banking and issuers clients – and their teams – with a seamless experience. Ultimately, we believe this focus on user experience is the key to building a product that will help our clients achieve their objectives.