KPMG International, the full-service audit, tax and advisory firm, has released its insights on the Canadian fintech market in its ‘KPMG International’s H1’24 Pulse of Fintech’ report.
Two landmark deals have taken place in the country propelling its total value of investments to a new high in the last six months according to KPMG. Despite a persistent slump in the fintech industry across the globe, Nuvei Corp., the online payment corporation, and Plusgrade Inc., the software provider for the travel industry, accounted for 94 per cent of the total value invested in Canada: $7.8billion.
This was up seven-fold from H1’23 which saw a total of $1.1billion in investment.
Nuvei’s $6.3billion take-private deal was the largest in Canada, and the second largest globally. A consortium led by American private equity firm Advent International Corp., along with Novacap Management Inc., Caisse de dépôt et placement du Québec (CDPQ) and Nuvei chair and chief executive Philip Fayer acquired the Montréal-based payment technology firm in April.
Furthermore, in March, New York-based General Atlantic invested $1billion into Montréal-based Plusgrade – making it the second largest deal in Canada and the fifth largest globally. The investment saw Novacap exit its stake in the Plusgrade, with CDPQ remaining a significant shareholder.
“These two Canadian deals – among the biggest in the world – reflect the growing fintech ecosystem in Montréal and Quebec more broadly, where the startup scene is thriving thanks to support from institutional investors, and world-class universities are providing a steady stream of talent,” says Georges Pigeon, a partner in KPMG in Canada’s deal advisory practice in Montréal who specialises in financial services.
Other deals in Canada
Excluding those two deals, the total investment was $516.8million, down 26 per cent from the $696million invested in the second half of last year. This was up nearly 20 per cent from the $434.2million invested in the first half of 2023.
Pigeon says after two years of relatively weak investment in Canadian fintechs, activity could begin to bounce back in the next six months. He said: “Over the past few weeks, we have already seen a number of significant investments and M&A activity take place in Canada, which suggests that the dealmaking environment could be on a path to normalisation soon – although it won’t return to the record level of investment we saw in 2021.”
Recent investments such as digital mortgage lender nesto Inc.‘s acquisition of CMLS Group, CGI Inc.’s acquisition of Celero‘s credit union business, and Clio‘s recent $900million Series F raise could could signal a potential pickup in deals, Pigeon notes.
“One trend we expect to see is that of well-funded fintechs acquiring traditional financial services companies. In that scenario, the target company can transform itself by upgrading its technology more quickly than a situation where it has to figure out how to absorb and integrate the fintech.”
Of the 65 investments in the first half, 46 were venture capital investments worth $264million. The largest VC investment was Brim Financial‘s $62.8million series C funding round in April. Corporate venture capital investments accounted for one quarter of all VC activity, with 12 deals worth $143million.
Which sectors saw the most movement?
The majority of funding flowed into the payments sector, with $6.4billion invested across nine deals, driven largely by the Nuvei deal. Fintechs in artificial intelligence and machine learning also lured investors, with $31million invested across eight deals.
“Investments in AI – and generative AI – are going to be a major area of investment in the second half of the year and into next year, but it’s important for investors to understand how to distinguish between the ‘hype’ and the high-quality opportunities that offer long-term value,” says Pigeon.
The most active sector for investments was in the cryptoassets and blockchain space, with 19 deals in total (worth $110million).
Canadian institutional investors and financial services organisations increased their adoption of and exposure to cryptoassets and blockchain in 2023, according to a previous KPMG in Canada survey. Strong markets, more regulatory clarity and new innovations in digital assets helped attract Canadian institutions to cryptoassets last year, setting the stage for continued investor interest in crypto-oriented fintechs in the first half of 2024.
Global fintech investment trends
Globally, $51.9billion was invested in fintechs in the first half of 2024 across 2,255 deals, down 17 per cent from the $62.3billion invested in the last half of 2023 (across 2,287 deals) – the weakest six months of fintech investment since the first half of 2020.
All regions experienced a noticeable drop in fintech investment with Europe, Middle East and Africa (EMEA) experiencing the sharpest drop — from $19.1billion to $11.4billion between H2’23 and H1’24.
Just over half of all global fintech investments were in the United States, where $27.4billion was invested across 1,123 deals. The largest investment was a $12.5billion acquisition of a majority stake in Worldpay by private equity firm GCTR, a transaction that closed in January.
“Heading into H2’24, fintech investment is expected to remain subdued – except perhaps when it comes to AI and generative AI – given the continued high cost of capital and geopolitical uncertainty. All eyes will likely be on interest rates and the U.S. presidential election heading into H2’24,” notes KPMG International’s Pulse of Fintech H1’24 report.