Financial Technology (Fintech) Taxonomy

HW&Co.'s fintech practice is focused on companies with software and technology core to their value proposition and market position. 

Enterprise & Commercial
Solutions focused on supporting B2C and B2B payments and financial activity, and serving the financial needs of enterprises of all sizes. Key focus areas include payments, B2B transactions, and financial software. 

Institutional
Solutions focused on serving the specific operational and complaince needs of banks, insurance companies, and asset managers. Key focus areas include banking, insurance, asset management, and trading. 

Consumer
Solutions focused on delivering improved financial and payment experiences, personal wealth management, and access to consumer loans. Key focus areas include peer-to-peer and personal finance. 

Harris Williams & Co. Fintech Ecosystem

*Dotted lines represent the typical flow of payment transactions. 

2018 Momentum in Vertical-Specific Software and Integrated Payments

Harris Williams & Co. served as the exclusive financial advisor on the three transactions outlined below. 

Togetherwork | Member Management

Description: Provider of membership management software and integrated payments to a diverse range of industry verticals including non-profits, sports leagues, and camps. 

Key Value Drivers: 

  • Comprehensive SaaS platform purpose-built for digital member engagement and payments across vertical market segments
  • Rapidly expanding market opportunity in excess of $10B given the breadth of solution offering, diversity of client base, and continued M&A activity
  • Attractive financial momentum with significant recurring revenue and scalable EBITDA margins

nCourt | Government Technology

Description: Provider of civic engagement SaaS and integrated payments for government entities with market leading position in courts and growing presence in adjacent markets.

Key Value Drivers:

  • Differentiated, SaaS platform with compelling value proposition for the government and the public
  • Large addressable market underpinned by favorable industry tailwinds as payments move online and governments become more digitally-focused
  • Impressive unit economics and cohort performance with strong revenue retention, accelerating recurring revenue, and high visibility

Property Brands | Real Estate & Insurance

Description: Provider of property management software, insurance, screening, and payments solutions for the residential and commercial real estate markets

Key Value Drivers:

  • Proven platform asset with track record of sourcing and integrating accretive acquisitions
  • Immediately addressable multi-billion dollar market opportunity, continuously expanding via product innovation and acquisitions
  • Large base of property managers with minimal concentration and outstanding retention rates

Enterprise & Commercial Market Observations

Payment Networks1

Observations: 

  • Digital transaction volumes are accelerating as payments continue to move online at a rapid rate, contributing to strong growth for payment networks that facilitate next-generation payment ecosystems
  • Delivering frictionless and secure transaction processing capabilities is a top priority of payment networks as they continue to seek growth opportunities across industries and geographies

In the news:

Mobile Payments Prompt Retailers, Card Networks to Innovate

Payment Processing1

Observations:

  • Software providers are increasingly integrating payment capabilities by directly establishing merchant relationships that enable them to more seamlessly process payments, improving customer experience and putting pressure on traditional merchant acquirers
  • Increasingly digitized payments across diverse channels are causing traditional payment processors to evolve to meet the needs of customers that demand convenient and secure solutions

In the news:

TSYS’ McHugh: Why Integrated Payments Is What’s Next

B2B Transactions1

Observations:

  • B2B payments continue to be a key focus area for businesses globally as more volume migrates online, spurring the need for innovative solutions that streamline payments and provide operational efficiencies
  • Next-generation solution providers continue to develop end-to-end digital enterprise payment platforms that improve speed, transparency, and compliance

In the news:

What’s Driving VCs’ Attention To B2B FinTech

Data & Compliance1

Observations:

  • Businesses across all industries continue to seek technology-enabled solutions capable of collecting and analyzing data across disparate sources to provide insight and make more informed decisions in real-time
  • Heightened awareness of and focus on privacy and data protection is driving the need for innovative solutions that offer security and regulatory compliance

In the news:

The New ID Theft: Millions of Credit Applicants Who Don’t Exist

Payroll & Benefits1

Observations: 

  • Saas-based solutions that offer human capital management, payroll, and benefits coordination continue to focus on differentiating their product offering by seeking additional features and integrations that enable team management, assessments, recruiting, and analytics
  • Incumbents and challengers alike continue to be acquisitive of solutions that expand their total addressable market and enable them to offer more integrated workforce management

In the news:

Ingo Money, ADP Give New Power To The Payroll Card

 

Institutional and Consumer Market Observations

Banking1

Observations:

  • Traditional financial institutions continue to acquire and partner with next-generation technology solutions as consumers increasingly demand multi-channel digital banking and engagement solutions
  • Digital-native banking platforms that offer consumers with flexible and convenient products are gaining prominence, putting additional pressure on incumbents, particularly as consumer loyalty remains low

In the news:

Citi Wants Fintech Startups to Disrupt Institutional Banking

Insurance1

Observations:

  • Insurance providers continue to adopt software that streamlines underwriting, onboarding, and claims processing, while leveraging data to make more informed and timely assessments of risk
  • Similar to the disruption occurring in the banking sector, digital-native and vertical-specific platforms continue to attract customers and put increasing pressure on traditional insurance providers

In the news:

How Travelers Is Re-inventing Part of Its Business to Cater to Millennials

AMT1

Observations:

  • Asset management and trading continues to evolve as firms seek to modernize their services, leverage data and analytics solutions to improve performance, and enhance client engagement as customers demand technology-enabled offerings
  • Traditional AMT providers aim to drive down their cost structure by incorporating digital solutions into their platforms as a means to attract and retain customers that have a growing array of options to choose from

In the news:

Why the CEO of $20 Billion Data Company Thinks Blockchain ‘Has Potential to be Transformative’

P2P Transfers1

Observations:

  • Consumer utilization of peer-to-peer payment solutions—especially those facilitated through mobile—have given rise to a number of innovative offerings and has forced incumbents to acquire or launch frictionless solutions to keep pace
  • Growing demand for peer-to-peer transfers continues to drive down costs as solutions providers of all scale compete to monetize rapidly growing payment volumes

In the news:

Digital Compliance Sends Money Transfers Speeding

Marketplace Lending1

Observations:

  • Persistently low costs of capital has enabled traditional lenders to maintain competitiveness, forcing challengers to find unique ways to differentiate their offering such as partnerships, alternative funding sources, and new product offerings
  • Niche players offering vertical specific solutions have successfully attracted new customers, but are still in the early stages of their development

In the news:

Securitization Could Lead to New Phase of Growth for Marketplace Lending

Select Fintech M&A Transactions

MINDBODY’s acquisition of Booker Software1

  • Booker is a provider of business management software and integrated payment solutions to spas, salons, and other beauty and wellness businesses
  • The Company’s platform is used by more than 130,000 professionals across 11,000 locations, and processes over $1.4 billion in annual payment volume
  • The acquisition of Booker will extend MINDBODY’s reach into new health and wellness verticals, enabling it to cater to a broader customer base and capture additional payment volume

ION’s acquisition of OpenLink1

  • OpenLink, a portfolio company of Hellman & Friedman, is a provider of treasury, trading, and risk management solutions to the financial services, energy, and commodities industries
  • The Company’s cloud-based platform equips over 600 clients representing 38,000 end-users with advanced analytical tools to make better decisions and mitigate risk
  • The acquisition broadens ION’s customer base and strengthens its product capabilities in financial services and energy, and represents an opportunity to invest significantly in building a comprehensive product portfolio

Blackstone’s acquisition of Thomson Reuters (Financial Software and Risk Management Division)1

  • Thomson Reuters financial software and risk management division provides data, analytics, and trading solutions to financial institutions globally
  • The Company’s flagship F&R product, Eikon, covers 99% of the world’s market capitalization and collects data from over 22,000 companies in 87 countries
  • Blackstone is expected to leverage its relationships across the financial services landscape to increase market share, while also seeking to improve profitability through operational improvements

Silver Lake’s take private acquisition of Blackhawk Network1

  • Blackhawk Network is an operator of a gift card and prepaid payments network and rewards platform for businesses globally
  • The Company partners with over 1,000 brands across 224,000 retail and online channels to provide innovate payment, incentive, and engagement solutions to consumers
  • Silver Lake’s take-private will enable it to pursue long-term growth initiatives, including investing in a new partnership with Alipay to facilitate Chinese payments to US retailers

SS&C’s acquisition of DST1

  • DST is a provider of tech-enabled information processing and servicing solutions for the financial services and healthcare industries
  • The Company generated $2.3 billion in annual revenue at the time of the transaction and services over 110 million investor positions across its platform
  • The acquisition provides significant scale, accelerates SS&C’s growth in the US retirement and wealth management markets, and is expected to yield synergies through increased automation and efficiencies

Fintech Acquisition Activity

Most Active Strategic Acquirers of Fintech Assets by Volume4

  • The 10 most active strategic fintech consolidators have acquired over 165 companies since 2012. 
  • This group completed 4 acquisitions in the first quarter of 2018, slightly behind the pace of 2017 after completing several larger deals.
  • Transformative acquisitions continue to be a theme among top active strategic acquirers as SS&C announced a $5.4 billion acquisition of DST, bringing together two of the larger AMT solution providers; IHS Markit and Global Payments’ each completed marquee acquisitions in 2017.

Global Financial Software M&A Activity4

  • Across financial software, there were 91 M&A transactions closed in 1Q 2018, with private equity transactions representing 30% of total deal volume.
  • Strategic and financial acquirers were exceptionally active in 1Q 2018, indicative of both the persistent and accelerating strategic appetite for innovative fintech solutions to augment existing offerings, and the healthy supply of emerging technology providers that continue to scale and warrant investment to fuel growth.

Enterprise & Commercial Solutions Landscape

Representative Enerprise & Commercial Solution Providers

Vertical Specific Payments Solutions - Landscape

Representative Vertically-Focused Integrated SaaS and Payments Providers

Note: Logos are representative of vertical participants and not comprehensive. 

Key themes for vertical-specific payments:

  • Emergence of digital payment gateways and card not present transactions.  
  • Increasing subscription and recurring payments in B2C and B2B environments.
  • Time sensitive and/or convenience driven.
  • Payment processing bundled with softwarebased sale.
  • Regulatory specific reporting and compliance.  Meaningful payment processing volumes.
  • Software vendor addition of payment facilitator (PayFac) models.

 

Enterprise & Commercial Solutions - Trading Comparables

Valuation1

Enterprise & Commercial Solutions - Transaction Activity

Institutional Solutions - Landscape

Representative institutional solution providers

Institutional Solutions - Trading Comparables

Valuation1

Institutional Solutions - Transaction Activity

Consumer Solutions - Landscape

Representative consumer solution providers

Consumer Solutions - Trading Comparables

Valuation1

Consumer Solutions - Transaction Activity

Summary of Technology IPOs

  • Despite a robust 4Q 2017, IPO activity in the sector slowed in 1Q 2018 as companies remain wary of the public markets and latestage capital continues to be readily available.
  • High profile technology IPOs candidates have made news recently as Airbnb and SoFi announced their intention to push their IPOs to 2019, while others such as Adyen and WeWork have announced their intention to remain private. \
  • Recently announced IPOs of Dropbox, Glassdoor, and a direct listing of Spotify will give a clear picture of the market’s appetite for new technology listings over the next few months.

Key Performance Metrics

Recent Software IPOs1

tmt24.jpg

Debt Market Overview

  • Median middle market LBO loan multiples in 1Q 2018 remained in line with prior years at 5.4x leverage.
  • Middle market LBO loan volume increased to $1.5 billion in 1Q 2018.
  • Lender activity within the technology industry is at an alltime high as companies bring back cash to repay debt and investors continue to enter the market.
  • Technology companies in the middle market were the second largest recipients of LBO loans in 2017, representing 15.5% of new issuance.
  • Median LBO debt percentages increased slightly to 54% of total purchase price in 1Q 2018.

1. FactSet
2. PNC Capital Markets
3. S&P LCD Stats
4. PitchBook