Private equity firms will step up interest in financial technology vendors over the next 12 months, with investment activity in the $50 to $250 million range showing the greatest rate of increase, according to research released by TowerGroup.
Between 2005 and the end of the first quarter 2007, only 2.8% of all private equity acquisitions were in financial services technology, cumulatively valued at approximately $33 billion, says TowerGroup.
But new research has found that a "livelier courtship" is now underway, which is evidenced by the recent acquisition of First Data by Kohlberg Kravis Roberts (KKR). TowerGroup says that private equity firms are starting to see the fintech sector more favourably due to "stickier revenue models", more spending by clients and a global business environment that demands innovation.
The next 12 months will see a large volume of private equity investment in fintech firms at the low end of the market - deals under $50 million - as well as in the $50 to $250 million range, says TowerGroup
The research also found that as long as the transaction is based on a mutual desire to develop the business - not on financial arbitrage - then any investment can improve products offered by a fintech vendor, says TowerGroup.
"Whether thorough complementary acquisitions or a commitment to research and development, newly private financial service technology vendors will have the opportunity to enhance their products and balance sheet as well as build stronger relationships with their financial institution customers," says Stephen Bruel, analyst in the securities and capital markets practice at TowerGroup.