Hyperfinance

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M&A

Key findings

Introduction

A revolution is coming in the financial services sector.

From the emergence of automated investment services in wealth management, to the advent of new models such as mobile wallet technology, to increasingly intelligent regulatory software, almost every link in the value chain is being disrupted.

For incumbent banks and asset managers, this disruption poses a very real threat to their business — but the most forward-thinking institutions are working out how to accelerate their innovation and seize the competitive advantage.

Our research findings explain why most of these financial institutions and asset managers are struggling to move quickly enough — and how that can be changed.

Key Findings:

  • 31% of respondents expect to acquire a FinTech business within the next 18 months, but of those who don’t plan to do so, 45% say the regulatory risk is too high, and 48% say they are delaying acquisitions while they seek greater certainty about which firm(s) would make the best target.

With this rate of investment in the sector, there are lessons to be learned and techniques that have been already adopted that will mitigate the risk.  Acquiring in such a fast moving market also brings with it a need for fast track and cost-effective acquisition processes.

  • 41% of respondents that don’t want to acquire a FinTech business cite ‘culture clash’ as a deterrent

When acquiring a FinTech business, it is essential to have an understanding of the implications of combining two cultures.  Developing an all-encompassing integration plan can assist with this.  It is critical that time and money is budgeted for proper integration.

  • 75% of respondents say they must improve their partnering capabilities to accelerate digital innovation

Selecting the most appropriate structure when partnering on digital innovation is very important. The structure under which the partnering exists should give every party confidence in the investment and partnership.

  • The industry acknowledges the need for consortia to enable certain new innovations to be implemented. However, 60% of respondents think some existing consortia are ineffective because they have too many participants, and 68% say they need a high level of control over the activities of any consortium in which they participate.

Choosing the structure for the consortium is critically important.  In particular, clarity of control and how decisions will be made is critical to the rapid and effective adoption of digital innovations.

How can we support you?

The Simmons & Simmons Corporate FinTech team has:

  • an unrivalled understanding of the FinTech sector;
  • recognised market leading transactional and regulatory expertise; and
  • extensive experience of advising on FinTech projects, in supporting clients at all stages of their development to achieve their strategic goals.

Our experience of working closely with some of the UK’s highest profile start-up and scale-up FinTech businesses means that we have a unique understanding of the requirements of these businesses, where the main risks are likely to be and how to maximise opportunities. The depth of our FI expertise also means that we are able to assist banks and asset managers to efficiently and effectively navigate their way through regulatory and reputational issues, including dealing with constraints on the level of ownership and/or control that would be appropriate when making investments in FinTech companies.

We were also the first law firm in the UK to launch a free legal advice fund to support the growth of exciting early-stage FinTech businesses.  We launched the Fund in May 2016 and selected the businesses we are supporting via the Fund in September.  We consider that the experience we have in deciding which FinTech businesses we invest in ourselves gives us a unique perspective when helping our clients identify and manage the risks involved in their own investments in this space

Our Fintech M&A Experience

  • We have advised on investments in some of the best known FinTech businesses in the UK including: Zopa, Seedrs, Wonga, Bullion Vault and Borro.
  • We have advised major banks on minority equity investments in the FinTech sector and we also advised the British Business Bank (and HM Treasury) in connection with its due diligence of the finance platforms that applied for designation under the Small and Medium Sized Business (Finance Platforms) Regulations 2015.
  • We advise a large number of FinTech 50 businesses including Funding Circle, LendInvest, Market Invoice, Iwoca, Osper, Suade and Synerscope as well as corporate investors such as Metro AG and numerous other FinTech start-ups including Moneybox, Origin, Cuvva, Tallysticks, Railsbank, Alterest, Flipper, Neat and Lifescale.

About the data:

On behalf of Simmons & Simmons, Longitude Research launched an online survey at the beginning of January 2017 and, over a 3 month period, conducted a series of independent one-on-one interviews to investigate and understand the strategies that large institutions in the financial services industry are pursuing to accelerate their digital innovation. We received 200 responses (as well as conducting 9 in-depth interviews), from senior individuals at international banks (both investment and retail) and asset managers.  Of the 200 responses, 26% are from UK (London), 25% Germany (Frankfurt), 24% USA (New York) and 25% from Asia (Hong Kong and Singapore).

 

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