The following article should be read as an op-ed and should not be construed as investment advice.
The investment banks and traditional financial institutions of the world aren’t necessarily known for innovation, but they are rapidly trying to change that perception. Even Square, which is large financial institution that doesn’t have a multi-century legacy, is growing through acquisition. 2021 has been an exciting year thus far in FinTech acquisitions, and here are the Top 3 interesting FinTech Acquisitions on our list:
$29B USD Acquisition of Afterpay (ASX: APT) by Square (NYSE: SQ)According to the statement on Square’s website, Afterpay enables 16 million customers to pay over 100,000 merchants globally increments of money over 6 weeks with no interest on products they can’t pay in full at the time of purchase. What’s curious is that those numbers do not match the numbers on Afterpay’s website, which states 14.6 million customers and 85k brands. My hunch says that Square may have inflated Afterpay’s user numbers a bit to make the $29Billion Acquisition look more reasonable, but even at 16 million users, Square is paying $147 per existing user essentially for Afterpay.
$29B is a lot to pay considering Afterpay’s “Buy Now, Pay Later” or BNPL is just a modern reinvention of traditional credit. There are many other solutions on the marketplace to help people buy things they can’t yet afford, but Afterpay is just that irresistible mint-colored button next to the “Buy Now” button on a shop’s website that also happens to promise zero interest for 6 weeks (and a cap of 25% in fees on late payments). Even if the customer pays on time every time, Afterpay can also makes money from merchants in the form of pay-per-click advertising.
The acquisition was announced on Aug 1st, 2021. Square’s stock went from $247 on Friday July 30th to $272 on Monday August 2nd, which shows that shareholders and investors are optimistic. It’s going to take some time to see how the integrations between Square and Afterpay lead to revenue generating synergies.
$2.15B Acquisition of Tink by Visa (NYSE: V)Never head of Tink? Neither have I — until Visa bought this Swedish based FinTech company that empowers financial institutions, primarily banks in Europe, to make data-driven decisions based on financial data on millions of customers. I have read a number of vague descriptions about what Tink does — It sounds both creepy and cool, but I can’t decide if it is creepier than it is cool.
The funny thing about this acquisition is that Visa originally intended to buy US based startup Plaid, which basically does the same thing as Tink, but was stopped by US anti-trust regulations. The acquisition of Plaid was announced at $5.3 Bil in cash, which is significantly higher than the acquisition of Tink at $2.15B. The regulations regarding financial data and anti-trust are different in Europe than in the USA, which may explain why Tink will remain Stockholm based post-acquisition. Although there is way less overlap in geography between Visa and Tink versus Visa and Plaid, maybe this may be a chance for Visa to further expand in the European market.
In the Open Banking Fintech space, there’s a lot of competition: Aiia, Plaid, Tink, Yapily, Railsbank — the list goes on. Without apples to apples KPIs on these companies, it’s hard to say which one is the most differentiated, but perhaps with the infusion of cash, network, and resources from Visa, Tink may be poised to grow exponentially and take market share in this space — that is, unless regulations about financial data change.
$2.24B Acquisition of GreenSky (NASDAQ: GSKY) by Goldman Sachs (NYSE: GS)On Sept 15, 2021, the Wall Street giant announced an all stock acquisition of GreenSky, which has grown from 10,000 home improvement merchants at the time of the announcement to 16,000 merchants today, which two months later in Mid-November based on the latest counts on GreenSky’s website.
GreenSky and Afterpay both offer financing on a platform with terrific UI/UX experience. While Afterpay is retail and online shopping focused, GreenSky is focused on much larger and less frequent purchases. GreenSky first built their foothold in Home Improvement and become the largest player in the home improvement financing space. Since the Acquisition by Goldman, they have expanded into Healthcare as well, and also has a merchant growth of 60% in two months since the Acquisition by Goldman Sachs.
Home Improvement contractors represent a heavily fragmented industry, with a lot of family business and smaller business that specialize by trade that lack the economy to scale to build the in-house online financing tools that a car dealerships have, which makes home improvement companies a prime target to build a niche in for GreenSky.
On September 14, Greensky was trading at $7.77 a share. After the announcement, Greensky jumped to $11.90 a share. During the same time period shares of Goldman Sachs went from $403.69 to $401.95. GreenSky stockholders will receive .03 shares of GS for 1 share of GSKY.
I can’t tell you how many startup founders I talk to that can’t wait until they are acquired. I mean, I get it. I like a good payday as much as the next person.
While M&A valuations — figuring out the mix between cash/stock — is a tricky art & science, the post-acquisition activities of merging teams and corporate cultures can prove to be a bigger hurdle. Plus, there are forces beyond the company’s control, such as changes in regulations and competitive landscape.
It is too early to tell if the following FinTech acquisitions actually lead to revenue generating synergies, as many of these Acquisitions have a runway of years before they pay off. Perhaps even the acquirers are thinking along macro trends of — “Buy Now, Pay Later”.