Cross-border payment mergers and acquisitions experienced a 35% decrease in 2023.
Decline in Cross-Border Payments M&A: Global Economic Factors at Play
A recent report suggests a 35% decline in notable mergers and acquisitions (M&A) in the cross-border payments space from Q1 to Q3 in 2023 compared to the same period in 2022. This decline is not confined to the cross-border payments sector but is part of a broader trend affecting global M&A activity.
The report, which analysed data sourced from various third parties and news outlets, attributes this decline to several interconnected economic and geopolitical factors.
- Weakened Global Economy and Political Fragmentation: The global economic slowdown, driven by political fragmentation, trade tensions, and inflationary pressures, has made investors more cautious, leading to reduced deal volumes overall, including in cross-border sectors like payments.
- Inflation and Labour Market Pressures: Rising inflation and labour shortages increase operational costs and uncertainty for acquirers, discouraging large-scale cross-border deals.
- Geopolitical Issues and Trade Volatility: Heightened geopolitical tensions, including trade conflicts, amplify regulatory uncertainty and risk perceptions, especially in sectors like cross-border payments that are sensitive to regulatory and compliance concerns.
- Increased Regulatory Scrutiny: Global antitrust and merger reviews are becoming more complex and tailored by jurisdiction, prolonging approval times and raising risk for cross-border deals.
- Investor Caution and Private Equity Activity Decline: Investment managers are adopting a patient approach, preferring opportunities resilient to economic volatility, reducing M&A activity from financial sponsors, while corporate buyers remain the majority of acquirers.
- Shift Toward Domestic Resilience: The reduction reflects a broader industry trend with deal activity gravitating toward domestic rather than cross-border targets, as firms focus on mitigating external risks in uncertain times.
Although some regions such as EMEA and APAC have seen pockets of cross-border M&A growth due to positive regulatory reforms and government policies, these localized uplifts have not offset the overall global downward pressure on cross-border payments M&A volumes in 2023.
The report does not specify whether the decline is observed across all sectors or just the cross-border payments space. Notably, the decline is observed across B2B payments, consumer money transfers, and payment processors, with the exception of card issuers where M&A activity has not significantly decreased.
The criteria established for businesses to qualify for assessment in this report includes having a substantial business focus in cross-border payments and acquisitions representing a significant stake of the acquiree's business. The biggest disclosed M&A this year was Worldpay's acquisition by GTCR at $18.5bn.
Joe Baker, senior copywriter and author of the FXC report, states that it is difficult to pinpoint specific factors driving the decline of M&A in the cross-border payments space without making generalizations. Acquisitions must have been publicly reported in established third-party media outlets to be considered for assessment.
The collapse of Silicon Valley Bank earlier this year is another factor potentially deterring companies from spending big on acquisitions. However, the report does not provide any information on the current state of M&A activity in any other industries or regions.
- Cautious Investing and Economic Uncertainty: The weakening global economy, coupled with political fragmentation, trade tensions, and inflationary pressures, has led investors to exhibit caution when considering investment opportunities, including cross-border businesses related to finance and investing.
- Regulatory Challenges and Business Focus: Enhanced regulatory scrutiny and tailored reviews prolonging approval times for mergers and acquisitions (M&A) have created significant barriers for businesses operating in cross-border finance and payments, favoring companies with a domestic focus over cross-border targets.
