M&A activity hits record high for tech sector in Q1
- New report shows stellar start to 2021
- Up-tick seen in investment appetite for FinTech businesses
A new report from technology-focused investment bank ICON Corporate Finance, has revealed record-breaking tech deal activity in the first quarter of 2021, up 28% on Q1 2020, with 268 deals announced. Evidencing resilience within the sector and a huge appetite for FinTech organisations, ICON believes M&A activity is yet to see its peak, and could easily surpass the UK total of 711 tech M&A deals completed last year.
Digital transformation, fast-tracked by lockdowns across the world, has created a plethora of new digital solution providers that are grabbing the attention of overseas PE backed acquirers. Among these, UK FinTech providers are proving flavour of the month as PE houses look to buy, build and eventually sell. Corporate acquirers too are playing their part in an effort to gain an edge over rivals or to provide new revenue streams. The result has been valuations rising to near record levels.
ICON believes that Digital Transformation across all industry sectors, including FinTech will continue to accelerate, boosted in no small part by appetite from overseas investors. Last year a record-breaking 48% of all UK deals involved cross-border backing, a figure which could yet be surpassed in 2021.
Driven by cheap capital, competitive bidding, and insatiable demand from PEs in particular, the spate of M&A activity in the FinTech sector has seen several notable deals, including the sale of Parmenion to PE house Preservation Capital Partners for £102m, double the amount that Standard Life Aberdeen (SLA) paid when it was acquired 5 years ago and about 5x revenues.
Q1 also witnessed big fund raising activity for challenger bank Starling, raising over £270m. Zego, which specialises in InsurTech raised £30m, and Stripe, which focusses on online payments, raised $600m at an extraordinary valuation of $95bn. Manchester-based, Matillion also closed an impressive $100m Series D funding round led by Lightspeed Venture Partners. Its ETL (Extract, Transform, Load) platform is picking up clients rapidly in the cloud migration market and is currently valued at well over 10x estimated revenues.
Consolidation within the sector saw James Hay acquiring rival advisor investment platform Nucleus in February for £130m (30x EBIT or just under 3x revenues), and AJBell acquired Adalpha – a mobile start up.
US fund manager BlackRock acquired Manchester-based pensions administration software and services provider Aquila Heywood for £350m. Dublin-based, Aryza Group acquired loan management specialist, Anchor Computer Systems, and HubSolv, a Glasgow-based provider of debt management and insolvency software. Backed by Pollen Street Capital, Aryza’s solutions now covers the lending lifecycle and utilises open banking and AI to automate processes. Financial restructuring, debt recovery and insolvency are currently key focus areas for the company.
Commenting on the vibrancy of activity in the FinTech sector, Brian Parker Head of M&A at ICON Corporate Finance, said: “It’s remarkable that thisquarter was the busiest ever, given lockdown 2.0. It’s another great example of digital acceleration improving productivity, with record numbers of deals closing, despite buyers and sellers not being able to meet.”
Sectors covered by the ICON UK Technology M&A Snapshot report include:
- FinTech
- Vertical Software
- Enterprise Software
- Communications
- IT Consulting & Managed Services
