Fintech

Berkshire Global: An update on the mergers and acquisitions landscape in wealth management, financial technology and private markets

Published

1 year ago

29 May, 2024

Berkshire Global: An update on the mergers and acquisitions landscape in wealth management, financial technology and private markets

The global mergers and acquisitions market collapsed in 2023, weighed down by rising interest rates and lingering questions about the health of the economy. That said, there were some pockets of strength, including wealth management, where the trading process was nominally down from the previous year but robust compared to the recent past.

With 2024 now nearing its halfway point, I reached out to some colleagues at Berkshire Global to get a better sense of the current dynamics impacting specific market segments and to look ahead. Their extensive experience and deep market knowledge will provide valuable insights:

Bomy Hagopian, CFA, Partner, co-leader of Berkshire’s wealth management practice
Mitchell Spector, partner, who leads Berkshire’s financial technology coverage and practice
Ted Gooden, partner, who founded Berkshire’s private markets business

Bomy, how do you think 2024 will perform compared to last year regarding M&A activity? Also, could the second half of the year be stronger if rates were cut?

Bomy: Due to a number of factors, we expect it to be another strong year for mergers and acquisitions in the asset management industry. First, the number of private equity firms entering the sector to support acquirers continues to increase, while existing acquirers remain highly active and engaged. Second, financial advisors continue to age, and mergers and acquisitions represent a solution to the industry’s ongoing demographic and succession planning challenge. Additionally, the costs associated with running an RIA are rising rapidly, whether it’s expenses to improve technology or keep up with compliance issues.

Therefore, smaller companies’ desire to reduce those cost burdens, as well as free up management time, will also likely fuel more deals in the future. Finally, not only are more wealthy people wanting financial advice, but existing clients also want more specialized service offerings. This increased demand within the consumer market for additional services should also support increased M&A activity.

As for rates, a more accommodative Fed could encourage more activity and lead to a stronger second half of the year. However, the forces impacting the current landscape are so profound that rate policy, while not an afterthought, will not be the primary driver of operations, one way or another.

Ted, there has been a boom in private credit in recent years. What impact did it have on the negotiations?

Ted: We are seeing a growing appetite from investors, which is starting to drive strategic interest from RIAs to access private credit, private equity and even some real estate investments. These private market managers have benefited from a pullback on various types of traditional bank lending, which accelerates the acquisition of deals for private markets products. Now that RIAs are starting to see the value in these products, their use is likely to continue despite the ups and downs in interest rates.

These private market products generally must be offered in semi-liquid form, such as an interval fund. Advisors also require them to present a variety of risk tolerances for their clients. Properly establishing private credit funds for RIAs takes a lot of time and resources due to the need to educate both advisors and their clients. There is therefore still a lot of untapped potential in distribution to the retail market.

One consequence is that acquisition opportunities exist for asset managers to acquire distribution platforms whose sales teams have relationships with independent RIAs and broker-dealers. A second consequence is that in some cases asset managers are starting to consider acquiring investment companies in private markets. And a third consequence, to top it all off, is that larger, institutionally focused private markets managers are considering acquiring complementary private markets product companies that also have industry reach. RIA.

Moving on to fintech and wealthtech. Mitch, what are the current prospects for closing the deals? To what extent have soaring valuations in the tech sector impacted the landscape more generally?

Mitch Spector Mitch: Last year unfolded a little slower than expected, largely due to high interest rates, but fintech and wealthtech mergers and acquisitions accelerated in the latter part of 2023. Difficulties in the financial market , especially for smaller businesses, have also led to restructuring and cost cutting. 2024 started with little deal flow, as often happens at the beginning of the year. On the bright side, the retirement technology sector has seen several large deals. AI capabilities will attract significant attention in deals for companies that have unique offerings instead of standardized products or that use surface-level AI simply to capitalize on hype.

As stock prices rise, larger operators are primarily looking for sellers with sufficient scale to make relevant acquisitions, including those with high valuations. This willingness to buy targets of a certain size, revenue growth, and in-demand technology indicates that mergers and acquisitions are set to increase throughout the remainder of 2024. Additionally, venture capital funding has begun to re-emerge, which, in future, it could allow some of these growing fintech and wealthtech companies to sell to strategic buyers who have strong relationships with wealth management firms, who are the ultimate buyers of their products.

Bruce Cameron is the co-founder of Berkshire Global Advisors,
the leading investment bank for M&A financial services and partner of the firm.

Source

Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

10 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

SUBSCRIBE TO THE NEWSLETTER

And get exclusive articles on the stock markets

Source

Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

10 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

Source

Fintech

M2P Fintech About to Raise $80M

Published

10 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

Source

Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

10 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

Today

To come
Aveni Assistance
Aveni Detection

Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”