The news: The number and total value of deals in financial services fell in Q2, according to KPMG research, as surging inflation and economic uncertainty continued to hamper dealmakers.
By the numbers: The report found the downward trajectory of M&A has continued as low market confidence impacts deals.
Analyst’s take: “A perfect storm of factors has cooled fintechs’ funding frenzy, including steep inflation, rising interest rates, the war in Ukraine, and fears of a looming recession,” says Insider Intelligence principal analyst Eleni Digalaki.
“Weathering the storm will require cost cuts, a singular focus on offering products that can bring in money, and securing good deals for external funding.”
Dwindling deals: The research highlights the wider trend of stuttering M&A activity. The downward spiral, which shows no sign of bottoming out, has been heavily impacted by slashed valuations. Rising interest rates have also made borrowing to fund acquisitions more expensive.
The market’s decline could create more affordable acquisition targets for firms, but it can also limit their options by cutting their valuations. Companies with lower valuations may also want to hold off from selling and wait for a potential rebound in their market price.
How will companies be affected?
The big takeaway: Deal and funding volume is lurching towards a bottom that could still be some way off. The second half of the year looks set to be leaner and meaner.
Read on: Check out our Analyst Take: Turbulent economy hurts fintech funding—here’s how startups can act for more on how fintechs can react to funding and valuation drop-offs.