Financial firms clear a path for emerging tech

by Michael Hill

As they look toward IT to solve business problems, financial firms and the software developers that cater to them are expanding their acquisitions of emerging technology companies. While overall fintech deal volume subsided slightly in 2018, the number of blockchain and machine learning transactions by those buyers rose sharply.

According to 451 Research’s M&A KnowledgeBase, the number of fintech blockchain deals increased sixfold in 2018, to 19 transactions. Those same acquirers also expanded their appetite for machine learning, printing eight purchases of machine learning targets, from just three a year earlier. The high multiples – including two deals that went north of 20x trailing revenue – and volume of tuck-ins and ‘acq-hires’ attest to the early stage of those technologies. Still, the rationale behind such transactions shows that these technologies, at least in financial services, are entering the mainstream.

Take Ernst & Young, which in July purchased the assets of cryptocurrency accounting software developer Elevated Consciousness. That deal suggests that at least one of the big four accounting firms views cryptocurrencies as an asset class that’s viable enough that it needs to help its clients assess the risk and tax implications of such investments. Elsewhere, TD Bank’s January reach for predictive analytics specialist Layer 6 was driven by its recognition of machine learning’s potential to improve customer experience.

As our surveys demonstrate, financial services rely on IT to meet business goals more so than other industries. In 451 Research’s recent Voice of the Enterprise: Digital Pulse, 56% of financial services executives have business-focused IT goals, compared with 48% for the entire study, while blockchain and machine learning were among the top four technologies anticipated to have the most transformational impact on business operations by 2020.