Several fintech M&A is expected after Paypal purchase of iZettle
The KMPG’s financial service strategy leady, Mitch Siegel, told MarketWatch in an interview regarding the acquisition of iZettle, a Swedish fintech company by Paypal where he said the acquisition “marks a pivot point for increased deal activity, deal sizes, and valuations”.
Mitch Siegel said that as some of the payments giants try to adjust to disruptive forces in the industry the deal made by PayPal arrives at some key themes that will be of interest for these giants. These key themes include the solution for small businesses as global commerce is gaining more and more importance and also more focus on on-line and offline retails. In Latin America and Europe card-based payments has been enabled by iZettle to small business dealers.
Siegel further said, “The blending of commerce online and offline is bleeding into payments infrastructure and the businesses are looking for full spectrum providers”. In order to up its game PayPal need to reinforce its in-store capabilities and techniques. However, other rivals in the competition will also be developing the online expertise to step up their game. If we take the example of Square Inc., SQ, +2.21%, it is purchasing Weebly to upgrade its multichannel offerings. Weebly provides website building services.
Public companies use PayPal
There are very few public companies that believe that focusing on e-commerce will increase their target customers however, in private companies case there are way more options and opportunities present. Siegel see an influx of M&A deals this year as he sees “confluence of factors” that can cause this influx. He believes, the banks and fintech companies relation will be more “synergistic” and also more globalization of supply chain.
Furthermore Siegel elaborated on how cross boarder payment is becoming a big thing and how traditional payments players’ interest for capturing this growth is increasing. “Even with some of those smaller businesses, as they start getting larger, there’s a global aspect to their supply chain,” Siegel said.
Even well establishes payments companies are opting for a well-integrated software development environment as explained by Tim Monnin the managing director of the fintech investment. According to Tim, “Increasingly they see value in being more closely aligned with vertically focused software partners,” he further told MarketWatch that software players with vertical integrations are “more convenient for merchants and payers,”
More and more companies are moving toward a system where the payment capabilities are directly linked with business software. This makes switching to the opposing payment offering for that company. Monnin said that this strategy leads to reduce in the overall wear and tear and help increase the pricing power.
“There aren’t a lot of competitors so you could have a pretty strong position in that vertical,” he explained. “Software has been a pretty popular theme.” these are the remarks of Josh Bech, a Capital Markets research analyst at KeyBanc while pointing at the acquisition of Active Network by Payments Inc. GPN, -0.61%. Active Network help customer to manage events for example like registering for a marathon, with its event management software.
Paypal is buying iZettle for $2.2 billion which is almost double the price it was trying to earn before from an organized Initial Public Offering. According to KPMG’s Siegel, it’s doubtful that companies interested in shaking hands with it will care about the high valuation in this sector.
Monnin says that purchase of U.S. companies can be a problem especially for Chinese companies due to regulatory actions. Due to this the U.S. government denied Ant Financial an affiliate of Alibaba Group Holding Ltd. BABA. -1.05% from the acquisition of MoneyGram Inc. MGI, -0.14% this year. Ant Financial is a money-transfer company based in Dallas and its purchase was denied because of concerns related to the company’s sensitive user’s data.
And as Monnin further explained, “This has turned companies in China toward acquisitions in other geographies outside the U.S.”
A total of 884 fintech deals were announced in the year 2017 with a total of 575 in 2016. 364 fintech deals have been announced internationally this year so far. This includes traditional transactions and Alibaba intention of buying 33% equity stake in the company Ant Financial.