Jay D. Wilson, Jr., CFA, ASA, CBA, vice president of Mercer Capital, was quoted on current acquisition trends among FinTech startups in a recent piece by Tearsheet, a leading digital finance publication.
In their article, The big question: Should fintech startups buy banks?, Jay discusses the challenges FinTech companies encounter when considering acquiring a bank to gain market leverage:
There’s more evidence of fintech companies acquiring banks, but not very much, particularly in the last five or 10 years, said Jay Wilson, the lead on Mercer Capital’s financial technology team and author of the forthcoming book Creating Strategic Value Through Financial Technology.
The valuation gap between fintech startups and banks makes it difficult to structure a deal, he said. Banks tend to be valued more through historical earnings and the price of tangible book value, whereas fintech startups, because of their perceived high growth potential, often tend to have higher earnings multiples.
“There are certainly benefits for fintechs if they acquire smaller banks,” Wilson said. “But if you bought a small bank then went out and signed partnerships with five, 10, 15 banks, you would be viewed more as a competitor.”
Startups would also be competing against other banks for those deals, he added. The under-$100 million class of banks has been consolidating aggressively in the last 20 to 30 years.
Jay is a senior member of Mercer Capital’s Depository Institutions practice and leader of Mercer Capital’s Financial Technology industry team. He is also the author of the new book Creating Strategic Value Through Financial Technology, which provides insight on how traditional financial institutions and FinTech companies can boost innovation and enhance valuation in a complex regulatory environment.
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