Two major private equity buyouts lifted H1'24 total deal value, but broader dealmaking activity was still relatively weak, KPMG report shows
TORONTO, Aug. 8, 2024 /CNW/ - Two large private equity buyouts propelled the total value of investments in Canadian fintechs to a new high in the first six months of the year amidst a broader persistent slump in Canadian and global investment, according to KPMG International's H1'24 Pulse of Fintech report.
A record US$7.8 billion was invested in Canadian fintechs in the first six months of 2024, up more than seven-fold from last year's full-year total of US$1.1 billion. Private equity investments into two Montréal-based fintechs – Nuvei Corp. and Plusgrade Inc. – accounted for as much as 94 per cent of the total value invested in Canada – and were also among the biggest five deals globally.
"These two Canadian deals – among the biggest in the world – reflect the growing fintech ecosystem in Montréal and Quebec more broadly, where the startup scene is thriving thanks to support from institutional investors, and world-class universities are providing a steady stream of talent," says Georges Pigeon, a partner in KPMG in Canada's deal advisory practice in Montréal who specializes in financial services.
Nuvei's US$6.3 billion take-private deal was the largest in Canada, and the second largest globally. A consortium led by American private equity firm Advent International Corp., along with Novacap Management Inc., Caisse de dépôt et placement du Québec (CDPQ) and Nuvei chair and chief executive Philip Fayer acquired the Montréal-based payment technology firm in April.
In March, New-York based General Atlantic invested US$1 billion into Montréal-based Plusgrade, a software provider to the travel industry – making it the second largest deal in Canada and the fifth largest globally. The investment saw Novacap exit its stake in the Plusgrade, with CDPQ remaining a significant shareholder.
Excluding those two deals, total investment was US$516.8 million, down 26 per cent from the US$696 million invested in the second half of last year, and up nearly 20 per cent from the US$434.2 million invested in the first half of 2023.
Mr. Pigeon says after two years of relatively weak investment in Canadian fintechs, activity could begin to bounce back in the next six months. "Over the past few weeks, we have already seen a number of significant investments and M&A activity take place in Canada, which suggests that the dealmaking environment could be on a path to normalization soon – although it won't return to the record level of investment we saw in 2021," he said.
Recent investments such as digital mortgage lender nesto Inc.'s acquisition of CMLS Group, CGI Inc.'s acquisition of Celero's credit union business, and Clio's recent US$900M Series F raise could could signal a potential pickup in deals, Mr. Pigeon notes.
"One trend we expect to see is that of well-funded fintechs acquiring traditional financial services companies. In that scenario, the target company can transform itself by upgrading its technology more quickly than a situation where it has to figure out how to absorb and integrate the fintech."
Of the 65 investments in the first half, 46 were venture capital investments worth US$264 million. The largest VC investment was Brim Financial's US$62.8 million series C funding round in April. Corporate venture capital investments accounted for one quarter of all VC activity, with 12 deals worth $143 million.
Total Fintech Investment Activity (VC, PE and M&A) in Canada
Quarterly (U.S. dollars)
Source: Pulse of Fintech H1'24, KPMG International (data provided by PitchBook), as of June 30, 2024.
DEAL STAGE |
VERTICAL/INDUSTRY
|
18 Late stage venture capital
|
19 Cryptoassets/Blockchain
|
15 Early stage venture capital
|
9 Payments
|
10 Seed round
|
8 Artificial Intelligence/Machine Learning
|
9 Buyouts/LBO
|
5 Regtech
|
6 Merger and Acquisitions
|
3 Insurtech
|
4 Private equity growth/expansion
|
1 Proptech
|
3 Angel investments
|
1 Agtech
|
Payments, AI and cryptoassets attract investors
The majority of funding flowed into the payments sector, with US$6.4 billion invested across nine deals, driven largely by the Nuvei deal. Fintechs in artificial intelligence and machine learning also lured investors, with US$31 million invested across eight deals.
"Investments in AI – and generative AI – are going to be a major area of investment in the second half of the year and into next year, but it's important for investors to understand how to distinguish between the 'hype' and the high-quality opportunities that offer long-term value," says Mr. Pigeon.
The most active sector for investments was in the cryptoassets and blockchain space, with 19 deals in total (worth US$110 million).
Canadian institutional investors and financial services organizations increased their adoption of and exposure to cryptoassets and blockchain in 2023, according to a previous KPMG in Canada survey. Strong markets, more regulatory clarity and new innovations in digital assets helped attract Canadian institutions to cryptoassets last year, setting the stage for continued investor interest in crypto-oriented fintechs in the first half of 2024.
Global fintech investment jumps
Globally, US$51.9 billion was invested in fintechs in the first half of 2024 across 2,255 deals, down 17 per cent from the US$62.3 billion invested in the last half of 2023 (across 2,287 deals) – the weakest six months of fintech investment since the first half of 2020.
All regions experienced a noticeable drop in fintech investment with Europe, Middle East and Africa (EMEA) experiencing the sharpest drop — from US$19.1 billion to US$11.4 billion between H2'23 and H1'24.
Just over half of all global fintech investments were in the United States, where US$27.4 billion was invested across 1,123 deals. The largest investment was a US$12.5 billion acquisition of a majority stake in Worldpay by private equity firm GCTR, a transaction that closed in January.
"Heading into H2'24, fintech investment is expected to remain subdued – except perhaps when it comes to AI and generative AI – given the continued high cost of capital and geopolitical uncertainty. All eyes will likely be on interest rates and the U.S. presidential election heading into H2'24," notes KPMG International's Pulse of Fintech H1'24 report.
About KPMG in Canada
KPMG LLP, a limited liability partnership, is a full-service Audit, Tax and Advisory firm owned and operated by Canadians. For over 150 years, our professionals have provided consulting, accounting, auditing, and tax services to Canadians, inspiring confidence, empowering change, and driving innovation. Guided by our core values of Integrity, Excellence, Courage, Together, For Better, KPMG employs more than 10,000 people in over 40 locations across Canada, serving private- and public-sector clients. KPMG is consistently ranked one of Canada's top employers and one of the best places to work in the country.
The firm is established under the laws of Ontario and is a member of KPMG's global organization of independent member firms affiliated with KPMG International, a private English company limited by guarantee. Each KPMG firm is a legally distinct and separate entity and describes itself as such. For more information, see kpmg.com/ca.
For media inquiries:
Roula Meditskos
National Communications and Media Relations
KPMG in Canada
(416) 549-7982
[email protected]
SOURCE KPMG LLP
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