2025 is off to a slow start for fintech mergers and acquisitions but investors are still interested in the market.
Many investors entered 2025 buoyed by sentiments that the
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"There is a lot of pent up demand for deal activity, and that's being driven across both private equities and large corporations," said Jonathan Langlois, principal of advisory financial services strategy at KPMG and an author of the report. "Last year you started to see a little bit of an uptick, but people were waiting to see how everything would play out in the geopolitical space. Now I'm having a lot of conversations with large corporations and private equities around kicking off diligences. They're all getting ready for it but they're waiting to see who's going to be the first mover."
Total fintech
The total number of deals are also down. Total deal count in the U.S. was 396 at the end of 2024, down from 783 at the end of 2021. The most active quarter was Q1 2022 when there were 925 deals worth $42.1 billion in value. Globally, across the board, KPMG found dealmaking levels are at the lowest they've been in several years, reflecting the U.S. trend.
Finwise Bancorp believes a new plan to hold more of the fintech loans it originates on its balance sheet will boost profits in 2025.
"So much has changed in just a few months," Langlois said. "Looking at what was the end of 2024 and where we are today is very different. I'm very interested to see how the rest of this year plays out because it's so different than last year."
Langlois pointed to continued uncertainties around geopolitical issues and interest rates falling at a slower pace than some anticipated. Another issue is a gap in valuation expectations.
"The fintechs are continuing to expect the 2021, 2022 multiples whereas the large corporations and PEs just aren't there anymore," Langlois told American Banker.
Exiting the COVID-19 pandemic, Langlois said, there was high interest in investing in fintechs but changing conditions have led investors to be reluctant to jump in the way they did a few years ago.
"COVID really forced the older generation into adopting new ways of interacting with their finances," Langlois said. "That led to a proliferation of deal activity in the fintech space. Now, people are being very cautious because interest rates are significantly higher than they were coming out of COVID and that's driving a lot of the scrutiny. Then you look at the things that are driving valuations today are margin expansion and really demonstrating profitability. That wasn't as important coming out of COVID as it is today."
Langlois said he has not had any conversations where investors have been held up out of fear of a recession, but interest rates and a hesitancy to be first have held investors back.
"What is holding things up is the interest rates and who's going to be the first mover," Langlois said. "We're off to a slow start in terms of deals this year. You're seeing some smaller deals, but who's going to be the first big one? When that happens, I think you're going to see a cascading effect of investors saying: 'OK, now is our chance. We've got to jump in because others are jumping in.'"
