Latest edition: H1 - 2022
The optimism that permeated the fintech market at the end of 2021 quickly transformed into concerns about a potential recession in H1’22 as uncertainties related to the Russia-Ukraine conflict, ongoing supply chain challenges, and rising inflation and interest rates took their toll on public and private companies alike. Both total global investment in fintech and the total number of fintech deals fell between H2’21 and H1’22.
Looking back, H1’22 can be defined by one word: unexpected. Consider some of the key trends we’ve seen across the fintech sector over the past 6 months:
- declining investment across most jurisdictions, particularly between Q1’22 and Q2’22
- shuttering of IPO window in wake of turmoil in public markets and rapid decline in valuations
- ongoing strength of payments sector across numerous jurisdictions
- increasing focus on automation and extreme automation in cybersecurity given the ever-increasing number of issues in need of investigation
- growing diversity of jurisdictions attracting fintech investments, particularly $100 million+ VC rounds.
Heading into the second half of 2022, market challenges are expected to continue, with investors increasingly focusing on top-line revenue growth, profitability, and cash flow. M&A activity is well-positioned to grow as mature sectors see consolidation and investors look for attractive deals amidst the downward pressure on valuations and as some startups contemplate alternatives to downrounds.
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EMEA attracts $26.6 billion in fintech investment
Total fintech investment in the EMEA region dropped from $31.6 billion to $26.6 billion between H2’21 and H1’22, driven by a decline in M&A deal value — which sank from $15.7 billion in H2’21 to $7.2 billion in H1’22. The region saw only two $1 billion+ M&A deals during H1’22: the $3.9 billion merger of Italy-based Nexi and SIA and the $1.8 billion acquisition of UK-based Interactive Investor by Abrdn.
Despite the decline in M&A and rapidly evolving geopolitical and macroeconomic challenges, fintech-focused VC and PE funding was incredibly robust in H1’22. VC investment rose from $14.3 billion to $16.6 billion between H2’21 and H1’22 — slightly eclipsing the previous record high of $16.4 billion set in H1’21. PE funding also saw a record high of $2.7 billion in H1’22, including a quarterly record of $2.1 billion in Q1.
Fintech is one of the most popular sectors in terms of Corporate VC investment. With inflation expected to remain high over the next few quarters and concerns of recessions, corporates feel the pressure of rising labour costs and capital expenditures which might hinder venture investments. However, some well-capitalized corporates may also look for opportunities to make strategic acquisitions at lower prices.
Top 10 fintech deals in EMEA in H1 - 2022
1. Sia (Milan) — $3.9B, Milan, Italy — Payments — M&A
2. Interactive Investor — $1.8B, Leeds, UK — Wealth/investment management — M&A
3. FNZ — $1.4B, London, UK — Wealth/investment management — PE growth
4. Trade Republic — $1.15B, Berlin, Germany — Capital markets — Series C
5. Checkout.com — $1B, London, UK — Payments/transactions — Series D
6. SumUp — $626.6M, London, UK — Payments/transactions — Late-stage VC
7. Qonto — $549.8M, Paris, France — Banking — Series D
8. Scalapay — $524M, Milan, Italy — Payments/transactions — Series B
9. Market Financial Solutions — $398.05M, London, UK — Lending — Late-stage VC
10. Lunar — $314.05M, Aarhus, Denmark — Payments/transactions — Series D
Trends to watch for in H2 - 2022
— Investors spending more time with their current investment portfolio companies to help them through the uncertainty that exists rather than focusing on diversification and new investments.
— Rising interest rates giving banks more cash to spend and more ammunition to invest in strategic players.
— Increasing consolidation across the fintech space as investors become more discerning, weaker fintechs struggle to survive, and well-capitalized companies look to take out some of their competition.
— Fintechs focused on broader ESG and sustainable finance starting to secure more funding than has been seen to-date as regulators have made clear their expectations on firms monitoring and managing their financial risks. The investment of capital markets actor Euroclear in Greenomy is a case-in-point.
— The fallout of the collapse of the crypto space and any side effects it has on the traditional investment world and on future regulatory action.
How can we help?
We support Fintech companies through the entire growth story:
— Our experts in financial regulation will support you to get the necessary licences and provide insights for you to comply with regulatory guidelines.
— Our dedicated financial legal experts are with you at each stage of your business, from idea through to exit.
— To get a comprehensive review of your organisation’s ability to manage and protect its information assets, and its preparedness against cyberattacks.
