As the industry’s appetite for digital technology grows, the capital that’s been flowing into mostly digital-focused fintech is solving real industry challenges right now. In the midst of unprecedented market volatility, recent deals and back-channel chatter illustrate that fintech demand remains high.
Here are a few of the deals (in no order) that caught my attention:
MVB Financial/Paladin: MVB, a mid-size bank with a stated focus on serving fintechs, acquired Paladin, a specialty fraud prevention company with a suite for merchants, credit agencies, fintechs and vendors. I like this bank-acquiring-fintech deal (similar to City National Bank’s August acquisition of FilmTrack and 2018 acquisition of Exactuals).
SoFi/Galileo: This $1.2 billion deal brought Galileo a valuation of at least 10X its estimated $100 million annual revenue while bringing plenty of value to SoFi. As Cornerstone Managing Director Brad Smith put it, this deal might not get the coverage of Visa/Plaid, but it should, because Galileo is like a mashup of Plaid and Q2’s CorePro if CorePro was extended to payments, lending and investments.
Visa/Plaid: With a ~30X revenue multiple acquisition price, this deal showed the value of integration in a big way. The deal premised on solving integration challenges. It marks a new high in two respects: 1) large valuations, with the closest recent similar acquisition being the ~20X revenue that Salesforce paid for MuleSoft, and 2) the value of solving integration challenges.
Robinhood: The digital self-help investing app closed on two funding rounds totaling $530 million at a valuation of $8.3 billion. Notwithstanding its well-publicized challenges, including outages and the failed launch of a savings account at a 3% interest rate, this deal illustrates how testing and learning in the digital self-help area can withstand big fails.
Stash: The investing app wrapped a $112 million funding round with Tech Crunch estimating its value at $812 million.
Stripe: The recent funding round raised another $600 million and valued the company at a generous $36 billion, which is ~10X estimated annual revenues. According to Stripe President and Co-Founder John Collison: “People who never dreamt of using the Internet to see the doctor or buy groceries are now doing so out of necessity. And businesses that deferred moving online or had no reason to operate online have made the leap practically overnight.”
FIS/Zenmonics: FIS is quietly acquiring the remainder of Zenmonics following its 2018 minority investment into the provider of digital banking, origination and branch solutions that created the FIS Digital One solution. The transaction has not yet closed. While the deal is likely financially immaterial to FIS, the impact of Zenmonics on FIS bank core clients committed to Digital One is significant. The acquisition makes sense given Zenmonics’ focus on FIS core clients.
Morgan Stanley/E-Trade: This $13 billion (~4X annual revenue) deal was announced in late February before COVID-19 and social distancing were known in the United States. I agree with Morgan Stanley CEO James Gorman’s recent point that E-Trade’s digital-first business model brought the company something custom-designed for a pandemic, “during a time when people now have learned to deal much more remotely.”
Intuit/Credit Karma: The largest deal ever for Intuit at $7 billion (~7X annual Credit Karma revenues) was announced in late February and is expected to close later this year. While Credit Karma’s business model (premised on partner bank loan supply) is impacted right now, the combined financial health focus of the two organizations should enable them to withstand the COVID-19 era very well together.
PayPal/Honey Science: This deal, which won GonzoBanker’s Overpriced Unicorn Award, still has me scratching my head. Cornerstone Advisors’ payments guru Tony DeSanctis pointed to the unique value of Honey’s data and time to market, and I totally agree, but PayPal couldn’t build this for under $4 billion?
Neocova: The startup core provider completed a $9.5 million fundraise including community bank participants Bank of St. Elizabeth, Coastal Community Bank, First Financial Bank, Kearny Bank, Provident Bancorp and Sunwest Bank. This follows on startup core provider Finxact’s $30 million funding round in 2019, which included the American Bankers Association and SunTrust.
LendingClub/Radius Bank: The acquisition of Radius Bank would bring an FDIC-approved, low-cost source of deposits and broader banking services to LendingClub. Although Lending Club just announced a 30% team layoff (not apparently impacting Radius), the deal is still expected to close within a year.
Other similar challengers Square and Varo Money received FDIC approval in the past couple months. Moven announced discontinued U.S. operations with a soft landing of customers to Varo. According to The Financial Brand’s Bill Streeter, Moven’s situation was a perfect example of capital becoming an issue. Shout out to Moven founder Brett King for a move that clearly prioritizes U.S. customer impact.
It’s a great time to be in fintech, solve problems and help people. . All this work requires capital flowing and people working together, and it’s good to see a lot of both still happening.
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“I sure wouldn’t want to be a fintech looking for capital right now.”
–Unnamed Industry Heavy, March 2020
“Stripe raises $600M at $36B valuation.”
–TechCrunch, April 2020
Thanks to Brad Smith, Tony DeSanctis, Jim Burson, John Meyer and Steve Williams for their contributions to this article.