This year is already shaping up to be a big one for M&A in the financial-technology sector, and private-equity giant Blackstone is positioning itself to be well prepared.
Blackstone’s fintech team, which is led by senior managing director Vincent Letteri, has its sights set on four key trends this year: the digitization of payments, software and services for alternative asset investing, embedded finance, and digital substitutes for banks.
Within that group, payments, embedded finance, and the intersection of the two are the areas Letteri is most excited about, he told Insider.
Within payments, that includes everything from the ongoing move away from cash and paper checks to the rise of alternative payments.
Businesses like Venmo, Zelle, PayPal and others have disrupted the country’s reliance on Visa, Mastercard, and American Express. The team sees it as a long-term trend.
“It’s a massive market in the trillions of dollars. And so you have the opportunity for many multibillion-dollar companies to sit within the payment space. Second, you have a number of large legacy players that are built on old technology, which are ripe for disruption,” Letteri told Insider as part of a look at PE firms’ fintech-investing strategy.
“We think there’s still significant runway, and the financial models are quite attractive in those spaces. You get to profitability faster than other sectors because of the nature of the payments landscape,” he added.
Embedded finance is a key piece of that disruption as non-finance companies, like Starbucks and Apple, build out financial technology and services, including facilitating ways to pay. That’s led Blackstone to focus on companies that enable others to offer financial services to their customers.
IPO delays also create deal opportunities
A more recent and emerging theme Blackstone has its eye on is fintechs delaying going public because of lowered valuations this year. Letteri said there were a number of businesses the firm was looking at, though he declined to specify which ones.
“A lot of companies that have been formed in the last 10 to 15 years have never been through a
recession
, have never been through an inflationary environment. Our executives have. Companies increasingly look for partners to help them navigate that,” said Letteri.
Blackstone also has its sights set on public companies looking to go private, Letteri added.
“Our approach is to build long-term relationships with these businesses. So these companies aren’t going to be new to Blackstone. It may just be that now’s the right time for something to happen,” he said.
The $881 billion PE firm started paying more attention to fintech around 2019, when it launched its growth-equity business led by global head of technology Jon Korngold, which targets financial services, among other sectors.
Blackstone’s fintech team, which sits within the growth-equity business, includes 12 people, from partners to analysts fresh out of college. The team is spread across New York, San Francisco, and London, and targets tech deals mainly in North America and Europe.
To be sure, the firm invested in fintech before 2019, including deals for the tech and analytics provider Ipreo in 2014, the online-payments company Paysafe in 2017, and the market-data provider Refinitiv in 2018.
Its latest investments, Dynamo Software, an alternative-investment-management tech system, and Chainalysis, a blockchain-based data provider, have come out of Blackstone Growth, a fund that closed at $4.5 billion last year and is not exclusive to the fintech space. Notable non-fintech investments from the fund include the dating app Bumble and the Swedish oat-milk company Oatly.
Blackstone also makes early-stage investments in fintech via a team outside of its growth-equity group. The eight-person team that is headed by Stevi Petrelli invested in iCapital, a wealth-management-technology provider, and Beacon Platform, a risk-management tech system for financial-services institutions, in 2021.
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