FinTech: 2022 Valuation Multiples
Not only did the FinTech industry stand the test of the pandemic in 2020: many FinTech subsectors saw skyrocketing adoption rates due to a rapid increase of the use of digital channels by consumers.
Research firm CB Insights has released their latest annual report on the State of Fintech in 2021, which analyses how payments start-ups, banking, alternative lending, wealth management, insurance, capital markets, SMB and real estate companies performed the past year.
2021 was an unprecedented year for FinTech investment: after 2020 saw a slight decline in funding and number of fundraisings, last year completely reversed the trend by nearly tripling the total invested amount in FinTech companies from $49bn in 2020 to $131.5bn in 2021. This was mainly due to the 343 reported mega-deals in 2021 vs 114 in 2020.
M&A Exits in the space surge from 540 in 2020 to 906 in 2021, showing that many entities in this sectors have reached their maturity, and on the public front median valuations from IPOs jumped from $1bn to $2.4bn.
Geographically, Latin America saw the biggest growth, jumping 269% by funding amount—mostly thanks to mega-deals—while Europe and Asia are now big enough to compete with the US in terms of deal share, at 23%, 28% and 34% respectively.
Digital Lending was last year’s hottest sector, growing 90% by number of deals and 220% by funding amount. According to CBInsights “Alternative lending solutions are rapidly gaining traction with millennial and Gen Z consumers, driving investment in the category. For example, incumbent banks are investing in (and partnering with) lending startups to reduce costs and address changing customer expectations.”
The digital payments sub-sector also saw a record-setting year, with 695 deals worth in total $32.5bn in funding.
Accenture’s Payment Disruptability Index, which measures current and future levels of disruption for the payment industry, notes that disruption is highest in the U.S, but closely followed by the UK, highlighting a significant chance for start-ups and payment companies to seize the opportunity to provide payments services.
Over 400 billion transactions worth $7 trillion are expected to shift from cash to digital payments by 2023, growing to $48 trillion by 2030.
FinTech Valuation Multiples
SEG’s reports offer interesting insights into FinTech valuation multiples. Their index comprises 99 publicly traded SaaS companies, broken down by sector.
FinTech companies’ revenue multiples have been steadily rising for three years until the end of 2020.
After closing Q4 2020 with a median EV/Revenue multiple of 15x, companies in the Index peaked at 19x in the first quarter of 2021 before taking a dip nearly back to pre-pandemic levels.
After 3 consecutive declining quarters, SaaS companies in the SEG Index recorded a median EV/Revenue multiple of 12.2x in Q4 2021.
While the overall trajectory of EBITDA multiples wasn’t dissimilar to their Revenue counterparts, the latest recorded median EBITDA multiple for FinTech companies was 38.7x in Q4 2021, 50% higher than pre-pandemic levels, showing that profitability makes all the difference when evaluating companies within this sector.
The majority of public SaaS companies (on which this analysis is based) remain unprofitable.
High EBITDA multiples show that investors continue to highly value fintech companies in the market, and are ready to pay a premium for growth even in absence of profits. So we can expect to see fintech companies trading at high multiples as they continue to disrupt the payments landscape.