Fintech sector braces for wave of M&A
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'There's a growing crop of mid-sized European fintechs now solidly profitable, strategically valuable, large enough to achieve high value exits but also no longer breakout IPO stories. Given investors have backed these firms for nearly a decade so far, we expect up to a third of them to be successfully acquired in the next three years,' says Basta. 'This will trigger a wholesale realignment of key European fintech sectors around a smaller number of broader platform players, both international strategics and independent firms who will be able to scale beyond $1 billion valuations.'
Companies that will feature in this next consolidation wave are not the Klarna or Revolut-level unicorns, nor early-stage single-product fintechs still trying to achieve minimum scale in their segments. Instead, the consolidation wave will focus on Europe's 'maturing middle tier': those companies generating up to £50 million in revenue, growing 20-50% annually and already profitable or break even after cost-cutting and funding constraints.
'These companies often face real commercial headwinds,' notes Basta. 'It's easy to double revenue from 5 to 10 million, but entirely different to scale from 100 to 200, particularly against larger fintechs and long-time, entrenched legacy players. Growth becomes more expensive, which drives thinking around strategic M&A. At the same time, with half of all capital going to native AI startups, many of these fintechs find raising larger rounds harder than ever today. In short, most have far greater strategic value than purely financial value.'
Recent deals include Thomson Reuters' $800 million acquisition of Pagero last year, along with the sale of Freetrade to IG Group and Ravelin to Worldpay — both transactions Artis advised on.
More deals like this are already in the works, Basta states, especially as these companies' investors begin reaching the end of their fund lives and need to realize the value of their investments. 'These are not isolated cases,' says Basta. 'We're seeing this shift in real time, across payments, trading and regtech.'
'This isn't just a sector trend,' he adds. 'It's a key inflection point for the European VC industry that has backed this sector since inception. These exits will determine the next generation of European fund success.'
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