Fintech M&A deal activity is accelerating in the DACH region
In Germany, Austria and Switzerland, also referred to as the DACH region, fintech financing and acquisition activities have accelerated in recent years on the back of a maturing fintech market and growing appetite from strategic players and industry stakeholders, according to a new report from PwC.
Over the past decade and a half, DACH’s fintech industry has seen $23.1 billion worth of transactions take place, including capital increases and mergers and acquisitions (M&A). More than half of this sum involved rounds and deals concluded within the past 30 months, showing that deal-making activity has grown drastically over the past two years, the new study shows.
Fintech financing in DACH report 2011-H1 2022, Source: PwC, 2022
The rising fintech funding activity has been driven by several trends, the firm says, firstly by the maturation of DACH’s fintech sector, a trend evidenced by the overall increase in late-stage venture capital rounds and the quintuple of the median. contract value.
Median transaction size (million USD), Source: PwC, 2022
Median deal value increased fivefold between 2016 and 2021, rising from just $1.3 million to $6.5 million. This increase can be attributed to the rise of the blockchain and cryptocurrency vertical, and the birth of the region’s first fintech unicorns and their large funding rounds, the report said.
Notable blockchain and crypto deals that closed in 2017 and 2018 included Polkadot’s $250 million fundraising led by Fabric Venture and Dfinity’s $102 million fundraising led by Andreessen Horowitz.
DACH is currently home to eight fintech unicorns, all of which have reached US$1 billion-plus valuations in the past 30 months after closing mega-rounds of US$100 million and above, CB Insights data shows.
German digital bank N26 was valued at USD 2.7 billion after closing a USD 300 million fundraising in January 2019, WeFox’s USD 235 million fundraising in the same year brought its valuation to USD 1.6 billion, and Austria’s Bitpanda raised USD 170 million in March 2021. valuation at USD 1.7 billion and became the country’s first fintech unicorn.
The second driver outlined by PwC is the increasing participation of strategic investors in the fintech sector, a trend that is visible when comparing their participation in H1 2022 versus 2011. While in 2011 strategic investors made up only 8% of investors in fintech, that share grew 2 .7 times to 22% in the first half of 2022.
The results of a survey carried out by PwC as part of the report further demonstrated this trend. Of the 30 bank executives interviewed, 45% of respondents in Switzerland and Liechtenstein said they had already invested in fintech, demonstrating the banking sector’s growing appetite for fintech investment.
Large and medium-sized banks with assets under CHF 10 billion were found to be the most active, with the majority of respondents already investing in fintech and signing 2.6 deals on average. Going forward, 38% of respondents indicated that they intended to invest in fintech within the next two years.
Appetite for fintech investment in the Swiss and Liechtenstein banking landscape, Source: PwC, 2022
When asked about their broader strategy when it comes to fintech, 55% of respondents said they have a formal and documented fintech strategy, showing that the majority of incumbents have a clearly defined approach to fintech.
For most banks, the main reasons they invest in a fintech company are to access new technology (35%) or enter new markets and business models (30%). Digital distribution (26%), blockchain and cryptocurrencies (22%) and data analytics (18%) were highlighted as the top capabilities they sought to develop through fintech investments.
Why are banks investing in fintech, Source: PwC, 2022
The survey also found that banks were most interested in revenue-generating fintech companies with working business models. They also favor fintech opportunities in Europe (64%), although some private banks indicated considering opportunities in South America or Asia. None of the banks interviewed are considering investing in fintech companies located in the USA.
Preference for revenue-generating fintech companies based in Europe, Source: PwC, 2022
Featured Image Credit: Edited from Unsplash
