Private Equity Investment in Financial Services Technology Providers
TowerGroup says that while historically private equity has not been strongly attracted to the technology companies serving the financial services industry, private equity firms are now "starting to see beauty in the financial technology sector, reflected in the value of its products, its revenues and its client base. 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."
Though 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.
For the user of financial technology to benefit from private equity investment in the technology vendor, the acquiring company must manage the transaction with a focus on such "new economy" parameters as research and development, versus such "old economy" tactics as asset stripping. 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."
Bruel's research, titled, "Private Equity Firms and Financial Technology Vendors: Finding Each Other at Last," explores the dynamics driving private equity firms toward investment in financial services technology vendors. It also discusses the challenges and opportunities likely to result and suggests how securities firms should adapt.
Add your comment... (note that all comments are reviewed before they're published)