Research group TowerGroup says private equity firms may
start taking more of an interest in the financial technology
industry. It has estimated that between 2005 and the end of the
first quarter of 2007, only 2.8 percent of all private equity
acquisitions were in financial services technology, worth around
$33 billion.
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A report on the prospects of the financial services IT (fintech)
industry by the US research group TowerGroup published recently
concluded that private equity firms may start taking more of an
interest in the fintech industry.
Since 2001, the number of private equity transactions across all
industries has grown by 25.3 percent. Yet except for a few notable
transactions involving investments in companies like SunGard,
private equity has not been strongly attracted to the technology
companies which serve the financial services industry.
In the report, Private Equity Firms and Financial Technology
Vendors: Finding Each Other at Last, TowerGroup estimated that
between 2005 and the end of the first quarter 2007, only 2.8
percent of all private equity acquisitions were in financial
services technology, cumulatively valued at approximately $33
billion.
Going forward, however, the situation may well change. Stickier
revenue models, more spending by clients, and a global business
environment that demands innovation will encourage private equity
firms to take a closer look at the technology providers to the
financial services industry, accelerating investment in this
sector.
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By GlobalDataThough the low end of the market (deals under $50 million) will
continue to see a large volume of transactions over the next 12
months, TowerGroup expects investment activity in the $50 to $250
million range to show the greatest rate of increase.
TowerGroup believes that both financial services institutions and
financial technology vendors can benefit from this new trend, if
the transaction is based on a mutual desire to grow the company –
not on financial arbitrage.
“A private equity firm with appropriate goals and strategies can
greatly improve the products offered by a financial services
technology vendor,” said Stephen Bruel, analyst in the securities
& capital markets practice at TowerGroup and author of the
research.
“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.”
