Top Private-Equity Firms Detail Key Themes, Strategies for Fintech

• Private equity pumped $203 billion into fintech deals last year.
• Deals in fintech are expected to continue to increase over the next four years.
• Insider spoke with five private-equity firms about the types of companies they are focused on.

Financial technology is a fragmented industry with plenty of room for consolidation. And private equity is increasingly moving in to help businesses scale and get in on the next batch of market leaders.

PE firms pumped approximately $203 billion into fintech across 167 transactions last year, according to the investment bank Financial Technology Partners’ annual report.

Further accelerating the deal environment are startups rethinking their plans to go public. Valuations in the public markets fell in the fourth quarter of 2021 and continued to stay low into 2022, spooking some fintechs.

That’s created a perfect storm for PE investors to make deals, experts previously told Insider. 

Insider spoke with managing directors at five top private-equity firms about how their fintech deal teams are structured, their outlooks on the market for 2022, and what investment themes ranked high on their lists.

Here’s how 5 top PE executives are investing in fintech

Advent International

Key investments in 2021: Xplor Technologies, the merger of two of Advent’s payment-processing companies, Clearent and Transaction Services Group

Team leader: Bo Huang, managing director of the business and financial-services team, and Chris Egan, managing partner

Advent’s first foray into fintech came during the 2008 financial crisis. Along with other PE players, Advent came to the rescue of banks by buying their noncore business units, providing much-needed capital and developing the businesses as a joint venture.

It started by acquiring Experian’s electronic-payment-processing unit, Monext, in France in 2008. The experience from that acquisition led Advent to take a 51% stake in Fifth Third Bank’s payment-processing unit, Fifth Third Processing Solutions, which rebranded to Vantiv the following year.

After selling Monext to the French bank Crédit Mutuel Arkéa in 2010, Advent joined Bain Capital in taking a 39% stake in the British payment giant Worldpay from the Royal Bank of Scotland, acquiring RBS’s remaining 20% stake in 2013.

Advent exited Vantiv in 2014 and Worldpay in 2017, reaping billions of dollars from their public listings in 2012 and 2015, respectively. 

Advent, which has $86 billion in assets, stuck with that investment theme, in the US, for about five years. In 2017, it moved on to embedded finance, which is the integration of financial products like payment processing or lending within a company’s website or app. It’s a theme the PE firm continues to pursue. 

Huang thinks of embedded finance as a “huge tailwind within fintech” because of how omnipresent it is in areas such as business, consumer lending, and buy now, pay later.

“It’s kind of in the early-to-mid innings, and it’s just becoming more prevalent across different pockets of financial services,” Huang told Insider.

Advent has invested $6.5 billion in 17 fintechs since 2008. And its 12-member North American team consists of one managing partner, Huang as the managing director, two principals, two vice presidents, and six associates.

Blackstone

Key investments in 2021: CampusLogic, a financial-aid-software company; Bright Health, a health-insurance startup; iCapital, a wealth-management-technology-platform provider; Dynamo Software, an alternative-investment-management tech platform; Beacon Platform, a risk-management tech platform for financial-services institutions

Team leader: Vincent Letteri, senior managing director in the growth-equity business

Blackstone’s technology-investing team includes 12 people, from partners to analysts fresh out of college, according to Letteri. The team is spread across New York, San Francisco, and London, targeting tech deals mainly in North America and Europe.

Letteri’s team is focused on four fintech trends this year: the digitization of payments, be it the move away from cash or the replacement of paper checks; software and services that support investments in alternative assets; digital substitutes for bank branches; and embedded-finance businesses that enable nonfinancial companies to offer payment options to its customers.

The $881 billion PE firm is most excited about the payments space.

“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.

“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.

Blackstone started paying more attention to fintech around 2019, when it launched its growth-investments business led by Jon Korngold, which targets financial services, among other sectors.

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 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 nonfintech investments from the fund include the dating app Bumble and the Swedish oat-milk company Oatly.

An emerging theme that Blackstone has its eye on is companies 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. 

Blackstone also has its sights set on public companies looking to go private.

“Our approach is to build long-term relationships with these businesses. So these companies aren’t going to be new to Blackstone,” he added.

TA Associates

Key investments in 2021: WorkWave, a software company that offers integrated payment processing for pest control, landscaping, house cleaning, and other field services; Insurity, a software and analytics provider to insurance companies 

Team leader: Roy Burns, managing director and cohead of TA’s North America financial services

Fintech has been one-quarter of TA’s investment activity over the past five years, Burns told Insider. The investments have stretched across healthcare, insurance, payments, wealth management, and childcare. 

Healthcare and childcare are not traditionally viewed as fintech, but TA takes notice of fast-growing companies that enable financial technology in those industries. Examples of investments include Rectangle Health, which streamlines how healthcare providers handle payments, and Procare Solutions, which serves as a payment processor for more than 30,000 preschools, day cares, and other childcare facilities.

TA, which has been around since 1968 and manages $47.5 billion, has teams in Boston and Menlo Park, California, that focus on five sectors: financial services, technology, healthcare, consumer, and business services.

“We’re spending our time getting to know companies in advance of them deciding to raise capital or bring on a partner like TA,” he said.

The ownership-agnostic firm is interested in controlling and minority investments. 

Burns said he expected to see continued acceleration of non-financial-services companies incorporating payment options and partnering with tech companies to build software that can desegregate different business systems.

Thomas H. Lee Partners

Key investments in 2021: Odessa, a software company for lease and loan origination and portfolio management; Abacus Data Systems, also known as AbacusNext, a cloud-based platform for accounting and legal firms

Team leader: Ganesh Rao, managing director and head of financial technology and services vertical

Boston’s THL, which manages $16.9 billion, has been around the investing block for 48 years but became a fintech investor in the 1990s with a stake in the consumer-credit-reporting company Experian. 

The 19-member fintech-focused team has recognized five investment themes within the industry: insurance technology, wealth-management tech, business-management software with integrated payments, software for chief financial officers, and banking software. 

For 2022, the firm sees the most growth opportunities in insurance tech, integrated payments, and software for chief financial officers, Rao told Insider.  

“We built up a really good pipeline,” he said of THL’s fintech deals.

Despite not having funds particularly focused on fintech, THL has been investing out of its vintage Automation Fund that closed at $900 million in 2020 and its ninth flagship fund, Fund IX, that closed its fundraising at $5.6 billion in October. Within fintech, THL has invested $3.5 billion in nine companies over the past six years.

Like Blackstone, THL is also interested in firms reconsidering going public this year. 

“Some companies that were not investable from our perspective from a valuation standpoint are potentially getting to a place where we could find it more interesting, and it could create opportunities,” Rao said.

Warburg Pincus

Key investments in 2021: Beacon Platform; Clearwater Analytics, business-management software for financial institutions

Team leader: Cary Davis, managing director of technology investments

This New York firm manages more than $73 billion in assets and has eight technology professionals, including four partners, tracking fintech opportunities across capital markets,

consumer banking

, lending, and insurance technology. 

Within each track, Warburg Pincus found its calling with nonfinancial companies that have embedded finance and cloud-based software and represent the next generation of consumer finance.  

“The SaaS-ification of capital-market solutions is something that we continue to look at. There might be some buyouts in that space of some chunky things that are legacy,” Davis told Insider, referring to software as a service.

To be clear, Warburg Pincus is more focused on making growth investments in new companies in that space.

Davis also said his team was looking at a number of names in the retirement space, as an increasing number of Americans are set to hang their hats up in the coming years. 

But Warburg Pincus isn’t interested in the consumer-facing companies that grab headlines. It wants the business-to-business companies because they are more profitable and have longevity. 

Warburg Pincus has invested nearly $6 billion in fintech globally from various funds.