Private Equity Interest in Financial Technology Heating Up

We recently participated in a round table discussion with a well known venture and growth equity firm to discuss trends we are seeing across the financial technology landscape. When asked about our broad thoughts on the state of financial technology, we promptly answered — “we believe that financial technology is the defining factor in the post-crisis banking model.” In other words, we believe that the market for financial technology is hot. Banks’ reliance on third-party vendors has never been as high as it is today and this will most likely pale in comparison to the level it will reach in years to come. The level of M&A activity has been substantially higher in 2011 compared to prior years – a clear sign of the growth the sector is experiencing.

The topic of this post though is not about how the financial technology market is hot, but instead about how private equity firms are entering the space at an alarming rate. We have never heard so many private equity firms convey to us how financial technology is a key investment area for them. A few recent larger deals of note include CVC Capital’s acquisition of ConvergEX Group, GTCR’s acquisition of both BankServ and Fundtech and KKR’s acquisition of IPREO. Several other private equity firms have made recent acquisitions of smaller mid-sized companies in the space.

The next 12 months will be interesting to see as private equity firms more frequently bump up against larger strategic acquirers such as Fiserv and Fidelity, among several others, in auction processes.