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Fintech M&A in Asia-Pacific Poised for Rebound After 2023 Nosedive

Fintech mergers and acquisitions (M&A) in Asia-Pacific (APAC) declined by nearly 15% in Q3 2023, with total deals dropping from 141 in Q2 2023 to 132 in Q3 2023, a report by market data and intelligence platform S&P Global Market Intelligence says. The figure marks a considerable decline compared with the 155 deals recorded during the same period a year ago.

This decrease was mainly driven by reduced activity in mainland China and Southeast Asia amid high interest rates, challenging fundraising conditions and geopolitical uncertainties. These conditions are expected to persist into early 2024, industry observers and analysts predict.

“Until these conditions change, along with the appearance of new drivers for dealmaking, I expect financial sector M&A in APAC to remain mostly in the doldrums in the coming quarters,” Justin Tan, a partner at global law firm Mayer Brown’s corporate and securities practice, told S&P Global Market Intelligence. “The fall in financial sector M&A in Q3 2023 is a continuation of an ongoing trend since Q4 2022 and Q1 2023.”

Sectoral breakdown of financial M&A deals in Asia-Pacific, Source: S&P Global Market Intelligence, 2023

Fintech, China’s wealth management poised for sustained M&A activity

Analysts argue that while a swift turnaround in M&A activity is unlikely, a few bright spots exist for dealmaking, particularly in the fintech industry, the Chinese wealth management sector and potentially among Japanese regional banks.

Deal count in the fintech sector recorded a slight uptick in Q3 2023, increasing to seven during the quarter from four in Q2 2023 and just two in Q3 2022. Fintech M&A deals in Q3 2023 included India-based Elpro International’s purchase of an additional 7.43% stake in Jio Financial Services.

In China, the wealth management and life insurance sectors hold great promises for more M&A activity amid sustained investors’ interest and an expanding mid-level income demographic, Barnaby Robson, a partner of deal advisory at KPMG China, told S&P Global Market Intelligence.

For Masahide Endo, senior consultant at Daiwa Institute of Research’s management consulting department, deals could happen in the Japanese banking sector as regional lenders may opt for M&A to survive in turbulent times.

Finance M&A activity surges in India

In Q3 2023, China accounted for just 13 finance M&A deals, down from 23 a year prior. Southeast Asia also witnessed a pullback, with finance M&A deals plummeting from 35 transactions in Q3 2022 to 21 in Q3 2023.

At the other end of the spectrum, finance M&A activity in India surged, jumping from 35 deals in Q3 2023 from 24 a year prior. Mayer Brown’s Tan expects the trend to sustain this year.

“India continues to benefit from a confluence of positive factors, including restructuring of activities by multinationals in light of geopolitical tensions,” Tan said.

“Strong growth in the fintech sector with continuing digitalization also drives a lot of growth in India.”

Announced M&A deals in select Asia-Pacific economies in Q3 2023, Source: S&P Global Market Intelligence, 2023

Opportunism remains

Despite the bleak outlook, some analysts argue that the ongoing slowdown in M&A activity in APAC is temporary, predicting that the trend could reverse in 2024, especially in Southeast Asia’s emerging markets.

“From what we see, there are still capital and M&A opportunities, and so we are in a temporary period where the market finds new valuation levels (rather than a prolonged slow down),” Craig Loveless, a partner at global law firm Norton Rose Fulbright, told S&P Global Market Intelligence.

“Given Southeast Asia is such an attractive investment opportunity for financial institutions, we expect this trend to reverse in this market next year.”

This sentiment is echoed by KPMG which projects fintech M&A fintech activity to rise in 2024. KPMG’s Pulse of Fintech H2’23 report, released in February 2024, shares an optimistic outlook on fintech M&A, predicting growing activity as interest rates start to stabilitize and as valuations normalize, closing the gap between buyer and seller expectations.

This will likely be most noticeable in the payments space where consolidation at the local, regional and global levels is already underway, the consultancy predicts. Additionally, interest in M&A opportunities is set to strengthen as investors increasingly look for opportunities to buy distressed assets at a discount.

APAC among the hardest hit regions by the fintech M&A pullback

Global M&A activity in the fintech sector witnessed a major setback in 2023, dropping to US$56.4 billion across 612 transactions, KPMG data show. The numbers are a far cry from 2022, during which M&A deals reached a total value of US$98.2 billion.

Global M&A activity in fintech, Source: Pulse of Fintech H2’23, KPMG, Feb 2024

APAC was among the hardest hit regions, recording just 91 M&A transactions that totaled a mere US$1 billion. This is a stark contrast to 2022, during which the region witnessed 128 M&A deals totaling a value US$34.1 billion.

Notable deals in 2023 included Warburg Pincus’ purchase of an 90% stake in Indian non-bank lender Vistaar Finance for a whopping US$250 million; the buyout of Singaporean multi-channel payment solutions provider AXS by Tower Capital Asia; and the acquisitions of Singaporean fintech companies CapBridge, a capital markets services and asset custody firm, and 1X Exchange, a private securities exchange company, by FOMO Group.

More recently, Filipino consumer credit fintech startup Salmon announced that it would acquire a majority stake in the Rural Bank of Sta. Rosa (Laguna), a long-standing financial institution in the country. The deal would see Salmon owning 59.7% of the bank and becoming a licensed banking institution in the Philippines.