Mergers and Acquisitions (M&As) are defined as consolidation of companies or their assets, which is underlined by the idea that together they will bring more value than separately. In the FinTech sector it is currently of high importance because we are witnessing fourth industrial revolution driven by digital innovation. This change affected all industries, some to lesser others to a higher extent. The financial sector saw many developments and changes in the way that the services are delivered and the operations are managed. As start-ups are using their agility to attract new clientele, incumbent players will be forced to acquire the necessary technology to compete. Specifically, already established FinTech companies are rethinking their strategy, and legacy financial institutions stepping up technological development. It creates a demand of FinTech Mergers & Acquisitions which allow market players to perfect and even expand the services which are offered and reach economies of scale through the reduction of costs and maximisation of both economic and non-economic benefits. However, it should be born in mind that M&A process is amongst the most difficult activity that an organisation can encounter within its lifecycle.
PSP Lab has the prerequisite experience to assist you through the entire FinTech M&A process, from assessing your market entry potential to valuing prospective targets, as well as helping you with the operational integration of the new business. Whether you are an already established market player or a venturer looking for a point of entry, PSP Lab can assist you by tailoring our proposition in accordance to your needs. Further, you can find a brief description of what is M&A as well as current opportunities for acquisition or investment. If you are interested in the latter, please scroll down to “Current opportunities” below.
FinTech Mergers & Acquisitions market size
FinTech Mergers & Acquisitions (M&As) have risen significantly in the past years. According to the report of Dealogic, the total M&A deals have risen from $31.8 billion in H1 2018 to a total of $116.6 billion in H1 2019 (January through Mid-June). FinTech is currently seen as a hot industry and deals are thriving in this sector as a consequence of a wide-range acceptance of technological innovation by the users of financial services. Both new market entrants in the form of venture capital firms that are looking to diversify their portfolio and already established market players are looking for possibilities to expand by the means of Mergers & Acquisitions of FinTech companies. A diverse group of buyers is driving this level of financial activity, and they are buying FinTech companies to save time, provide convenience, reduce costs or enable regulatory compliance.
Types of Mergers & Acquisitions
From a legal perspective, a merger is a process where the two entities are consolidated, whereas acquisition concerns instances when one entity overtakes stock, equity interests or assets of another. Mergers & Acquisitions is a general term used to describe the consolidation of companies or assets through various types of financial transactions, including mergers, acquisitions, consolidations, tender offers, purchase of assets and management acquisitions. To break it down in even more details and outline specific characteristics, Mergers and Acquisitions can be classified as follows:
Merger concerns business combination between two or more entities, conventionally, it is seen as a decision of two ‘equals’. It can have different final results: (a) creation of the new entity, (b) merger by absorption, or (c) reverse merger.
Acquisition or takeover concerns purchase of a smaller business by a larger one. It can be either (a) purchase of assets, or (b) purchases of shares.
In a merger of two corporates, the shareholders usually have their shares in the old company exchanged for an equal number of shares in the merged entity. In an acquisition, the acquiring entity usually offers a cash price per share to the target firm’s shareholders or the acquiring firm’s share’s to the shareholders of the target firm according to a specified conversion ratio.
What is included in the M&A process?
M&A is a quite lengthy process (from 6 months to a couple of years, depending on the complexity of the transaction) which involves seven overall steps, which are discussed in more detail below.
1. Pre-due diligence phase
The pre-due diligence phase concerns the high-level evaluation of the transaction, it takes into account such matters as expected return on the investment, liabilities and tax implications that can arise during the process. The core is to define what is expected from the M&A by taking into consideration the current market conditions, parties’ financial positions, and future projections. During this phase, it is important to agree on the type of deal that will take place and sign the preliminary documentation contemplating the transaction. The documents that must be taken into account at this stage involve letters of intent/memorandums of understanding, non-disclosure and exclusivity agreements, break fee arrangements/inducement fees. It is important to consider the form in which these documents will be drafted as there are different legal implications for each and every one of them.
2. Due diligence
The due diligence phase refers to the evaluations aimed at ensuring that every aspect is in conformity prior to finalising M&A transaction. It concerns the evaluation of the entities involved in the transaction and assessment of their fitness for the anticipated M&A. The matters that should be assessed concern evaluation of truthfulness of the information related to the organisation of processes, obligations and agreements, pending or potential lawsuits, finances, employees and customers. During the due diligence phase, the parties should create the financial projections and operational analysis, as well as assess the conformity of entities concerned. In order to carry out successful due diligence, the team of legal and financial experts with special knowledge in M&A will need to be assembled. Fortunately, this is exactly the type of people that you can access through PSP Lab.
3. Preparation of documentation
The third phase of FinTech Merger and Acquisition transaction concerns the preparation of underlying documentation in accordance with which the deal will be structured. Depending on the type of transaction, this phase will most often involve the preparation of share purchase or asset purchase agreement, escrow agreement, shareholders agreement, agreements governing key employee retention, and non-circumvention/non-compete agreements. Each FinTech Merger and Acquisition transaction has its own peculiarities. Therefore, preparation of documentation should be approached with due care to ensure that all of the twists and turns are taken into account.
The pre-closing phase involves the fulfilment of all conditions that are required for the deal to be realised. It is a period between the signature of the underlying documentation and the closing of the transaction during which preparation of all required deliverables for the effectuation of the transaction takes place. In the field of FinTech, it will involve procurement of all required approvals from the supervisory authorities, obtaining third-party consents, getting key employees to sing novated agreements, and fulfilment of other conditions that are necessary for the M&A to go through.
In each M&A closing is considered at the earliest stage of the transaction, and rightly so, since it is the phase when the funds are actually exchanged and the deal is effectuated. Closing occurs when all of the underlying conditions are fulfilled and M&A transaction actually occurs. For successful closing, all conditions of the deal must be fulfilled and deliverables properly exchanged between the parties. You will typically begin to realise the benefits of the transaction at the closing and this can be the most satisfying part of the deal. A smooth closing indicates that all of the planning, hard work, and organisation were successful. If you wish to learn what does it feels like, we encourage you to employ PSP Lab for the supervision of your FinTech Merger & Acquisition transaction.
Most of the M&A transactions involve certain obligations that must be fulfiled after the closing takes place. They are referred to as post-closing conditions and obligations. These obligations may be formally required by the documents underlining the FinTech Merger and Acquisition transaction, good-faith agreements, or they can be just a part of standard market practice (e.g. delivery of final documentation).
7. Post-closing integration
The last step in the M&A process concerns making the transition as smooth as possible in order not to disturb the business of the entity which occurs out of the merger or acquisition. For successful post-closing integration in the FinTech sector, it is essential to have experts who know how FinTech business is managed. Thankfully, you are in the right place and can benefit from the services offered by PSP Lab that will ensure a successful transition with minimal disturbances to normal business operations. You can learn more about how we can help by reviewing what we offer in terms of management consulting.
As can be seen from the above, M&A is a quite tedious process, which should not be undertaken without proper preparation and involvement of professionals who will be able to supervise the whole transaction. It is always advisable to seek qualified advice from market professionals who are working specifically in the industry where the merger or acquisition takes place.
How PSP Lab can help you in FinTech Mergers & Acquisitions?
PSP Lab advises independent buyers and private equity investors throughout the whole process of investment, merger or acquisition. We are specifically concentrated on the deals in FinTech Mergers and Acquisitions sector. With our help, it is much easier to reach the best deal for both sides. Our unbiased approach guarantees the correctness of valuation of the business and identifies any inconsistencies, potential problems or issues. PSP Lab provides independent, objective, and focused advice on transactions that achieve strategic growth objectives through acquisition or realise inherent value through various tactics. Having a team which is specialised in the reorganisation and facilitation of the successful transaction guarantees the prosperity of both businesses involved.
IFPRU50K (exempt CAD) investment firm in the UK
The Company was established as MiFID investment firm in order to carry on activities of receiving and transmitting of orders from investors in relation to one or more financial instruments or providing investment advice:
- Type of the authorisation: Exempt CAD may receive & transmit orders and/or give investment advice
- Cross border passports: all 31 EEA member states
- Date of establishment: May 2018
- Number of directors: 2
- Number of shareholders: 2 (two private individuals)
- Office location: registered office in Mayfair, London
- Authorised and paid share capital: GBP60,000
- Cash position: GBP45,000
- Current burn rate: zero
- The number of employees: zero
- Long term third party provider contracts: none
- Bank account: Metro Bank
- Services authorised:
- A(1) Reception and transmission of orders in relation to one or more financial instruments;
- A(5) Investment advice;
- B(3) Advice to undertakings on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings;
- B(5) Investment research and financial analysis or other forms of general recommendation relating to transactions in financial instruments.
- A fully developed framework of corporate controls, risk management and money laundering prevention policies and procedures;
- All regulatory reports filed on time, the company has not received any fines or penalties from the FCA and is in good standing.
- Asking price is GBP300,000 including cash in the company
- Two directors of the company will facilitate change of control with the FCA and can stay in their roles after the closing of the transaction, if necessary and if there is reasonable compensation;
- The owners are also open to JV if there is a partner who wants to develop the financial services business together as a shareholder of the company and/or upgrade the license;
- The Company’s current licence is similar to a Restricted Broker Licence, which is practically an introducer-type of licence allowing for sales and marketing but (at the moment) the Company can not hold client’s money under their IFPRU 50k license (exempt CAD). Being already an authorised investment firm, any upgrade of the license in order to be able to hold the client’s funds, the Company needs to prepare a new business plan and apply to the FCA for a so-called Variation of Permission. The approval might take around 2 to 3 months from the day of submission. In that instance, the Company shall increase the capital to a minimum of 150k EUR. Currently, the investment firms can hold the client’s money when they hold either an IFPRU150k or IFPRU750k license. The difference between them is that with the 750k licence the firm can hold client’s money and act as a market maker (so-called Dealers Licence), with the 150k the firm can still hold client’s money but not allowed to act as the client’s counterparty (it’s the so-called Matched Principal or Intermediary licence).
If you are interested in any of the above opportunities, or would like to sell your payments business, please do not hesitate and get in touch with us using the contact form. Absolute confidentiality guaranteed!