In the money: Ireland’s fintech sector continues to thrive in 2021

Fintech hit the headlines in Ireland again in May, when Fenergo, a Dublin-based provider of software solutions for financial institutions, was bought by two venture capital firms and the existing management team. While the financial terms of the deal were not disclosed, sources told the Irish Times it could have been up to $600 million – giving Fenergo a valuation of more than $1 billion, along with unicorn status. [www.irishtimes.com/business/technology/irish-fintech-fenergo-valued-at-over-1bn-after-600m-deal-1.4552456]

The attraction of Fenergo to the two VCs – France-based Astorg and London-based Bridgepoint – was obvious; in the financial year ending March 2021, Fenergo’s revenue increased by 17% to $107 million, despite the effects of the COVID-19 pandemic.

Speaking at the time of the deal, Marc Murphy, founder and CEO of Fenergo, said: “We are delighted that Astorg and Bridgepoint have chosen to invest in our company, providing us with the financial strength required to pursue our ambitious high-growth strategy. Both Astorg and Bridgepoint have enormous experience and credibility in our sector, something I am keen to leverage over the coming years.”

Fenergo has expanded quickly in recent times and this deal will help to develop new products and expand the number of employees in the business.

Mixed 2020

The Fenergo deal also shows that fintech is once again back on the agenda for dealmakers. This comes after 2020, which was, to use a footballing analogy, a game of two halves for the Irish fintech sector. In the first half of 2020 new records were set, with $328.6 million worth of M&A, venture capital and private equity transactions recorded across eight deals, according to the KPMG Pulse of Fintech H1’20, a bi-annual report tracking global fintech venture capital, private equity and M&A investment trends.

However, in the second half of the year that total fell to just $68.6 million – significantly below the totals for the second halves of 2019 and 2018 ($104.8 million and $97.9 million respectively). [home.kpmg/ie/en/home/media/press-releases/2021/03/pulse-of-fintech-h2-2020.html]

The nadir was the third quarter of 2020 when just $4.2 million worth of deals were completed. Of course, this was largely down to the COVID-19 pandemic, which had sent Ireland into lockdown from late March.

But the sector rebounded in the final three months of the year, with more than $60 million worth of deals completed. This was largely down to two deals; Dublin-based payroll solutions provider Immedis raising $50 million in early-stage venture capital investment in order to grow its presence in the US and APAC markets, and Wayflyer, an e-commerce financing and marketing analytics start-up, which secured $10.2 million.

While figures for the first half of 2021 are not yet available, the bounceback in dealmaking seen in the latter part of 2020 appears to have rolled over and accelerated in 2021. While Ireland did experience another lockdown in the early part of the year, it did not have the same effect on business as the first one, and deals were still concluded.

M&A Activity

One of the more significant deals concluded in March, when Australian prepaid solutions provider EML Payments acquired Sentenial Ltd, and its subsidiaries, including its open banking arm, Nuapay, in an $83.1 million deal. [fintechmagazine.com/digital-payments/irish-fintech-sentenial-bought-eml-payments-usdollar831m]

EML targeted Sentenial because of its wide customer base that includes the banking, software and corporate sectors – indeed, Sentenial is connected to 1,750 banks across Europe. Sentenial and Nuapay have been successful in the fast-growing European open banking sector.

This deal followed EML’s purchase of fellow Irish fintech company Prepaid Financial Services Ltd for $202.15 million in March 2020.

EML’s managing director, Tom Creggan, explained that the acquisition is the next part of the company’s evolution into a broader payments business by adding an open banking operation.

Sentenial is now being integrated into EML and post-acquisition the existing management team will continue to grow the business and expand its operations into other regions over the next 18 months.

Investment

Irish fintech companies are also successfully raising finance again – and not just at the larger end of the market. In May, Dublin-based Asset Class raised $3 million in a funding round to expand its operations. Angel Oak Investments, which is owned by a US parent company, led the funding round, adding to the more than $20 billion in assets it already has under management.

Asset Class, which provides software to customers in a range of financial sectors, plans to use the funding to grow its technical development team and increase its sales and marketing activities.

Meanwhile, Poland-based fintech Booste announced last month its plans to enter the Irish market by providing at least €13 million in investment to businesses in the country before the end of 2022. The company also plans to recruit people in Ireland.

Booste provides flexible finance to online businesses with a fast approval processes. In return, it receives a small percentage of the company’s future revenue.

Ireland was considered an attractive market to Booste; it is one of the largest ecommerce markets in Europe and enjoyed significant growth during 2020, according to its co-founder Jakub Pietraszek. He added that the Irish market could become as significant to Booste as its home market in Poland.

Why invest in Irish fintech companies

Pietraszek’s comments are indicative of the reasons for fintechs to start up in Ireland or establish a base in the country.

As noted in our previous blog on fintech [www.maloneaccountants.ie/ireland-legal-fintech/], there several good reasons why fintechs should come to Ireland. These include the well-developed infrastructure for fintech companies, the number of industry bodies, government backing for the sector and the country’s young and skilled workforce.

Another pull for Ireland is its membership of the European Union. As Anna Scally, partner and fintech lead at KPMG in Ireland, said: “Ireland remains well positioned to see increased fintech investment post-Brexit from banks and financial institutions choosing Ireland as the base for their European operations.”

Part of that pull is that Ireland is the only nation that speaks English as a first language, plus it is part of the single market and so has unfettered access to the 26 other countries in the bloc.

Fintech’s future prospects

As the figures above show, the prospects for the fintech sector in Ireland look set for for the coming years. Fintech is still a rapidly developing sector, which means that there are plenty of opportunities for investment or acquisition.

It is anticipated that there will be a period of consolidation in the fintech sector in the coming years as the larger players seek to scoop up smaller rivals, especially those working in niche areas. There will also be investment opportunities, especially at the smaller end as fintech companies seek funds to get to the next stage of growth – such as for product development, marketing or moving into new territories.

While there are always risks associated with investments, especially into developing sectors, it seems the demand for fintech, especially as technologies such as artificial intelligence become more prevalent in solutions, will continue to grow as more financial companies seek to gain a competitive advantage through the technologies fintechs offer.

About us

Malone & Co Accountants https://www.maloneaccountants.ie/ can assist on all the relevant aspects from setting up a company to the provision of cross jurisdictional tax planning services through our extensive, international networks and associations.