Wealth Tech and Regtech Funding, and M&A Deals of Interest – Week ending 27th January 2024
Here are the deals of the week that caught my interest. I have, as I did last year, focused more on the rational and theme where I think there is an interesting angle to share. In some cases, I have an "inside” perspective that I believe will be helpful and will also often have some former dealers with some of the investors that may have underwritten, as lead, a particular round of funding. Enjoy.
M&A News
Objectway S.P.A. acquires Nest Wealth Holdings
Why interesting [Note/I have a relationship with Objectway]: Objectway, headquartered in Milan, but operating in Europe and the UK, often acquires, as a market entry strategy, or as part of a capabilities strategy to integrate more digital solutions, small businesses with enterprise clients operating in wealth and asset management. Nest Wealth isn’t a huge, scaled player operating in the Canadian wealth technology arena, but it offers via integrated On-Boarding/Account Opening, Financial Planning, and a low cost Digital Wealth platform, both a foundational market presence as well as enhanced front office components through which Objectway should be able to build more market share as well as widen the usage of certain capabilities beyond Canada. The proximity of Canada to the much larger (20x as big in assets, 8x as big in firms) US market could be an extra bonus.
IEDigital acquires Abaka
Why interesting: Abaka, with operations and clients in France and the UK has tried gainfully for a number of years to establish a foothold in applying Generative AI and NLP powered solutions and intelligent automation to creating a scalable advice platform for banks, asset managers and insurance companies to use for their retail wealth proposition. They never were quite able to get to scale, and thus in the end came to market to find a new home for the business. IEDigital are a new ambitious player in the client experience, digital financial product distribution arena who may well seek to apply Abaka’s platform to a wider audience of retail savings and investment providers, and devise solutions not only to help with investments, but savings products, mortgages and insurance too.
Allfunds rumoured to be in play (again)
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Why interesting: The share price of Allfunds got a bigger pop from the news that SIX group could be an interesting buyer (in a small process) than it did previously from the Euronext offer, suggesting that at the current price point (at least), we might be closer to a deal that the current largest PE and corporate owners might consider.? There wasn’t great confidence expressed that SIX would be able to find the funding easily though I have noted that European banks seem to be more willing to offer alternative options to private debt lenders at more attractive rates and that Allfunds counts many of note that are either existing clients or former shareholders. Allfunds has a very strong and stable market position within the fund distribution ecosystem but seems to be suffering due to a combination of a changing and tough competitive landscape (that is driving fees down) as well as macro conditions that suggest both less clients and more constrained underlying profitability.? Perhaps Allfunds would be advised to try to make a major move into regtech for asset management looking at opportunities related to “assessment of value”, an area where they theoretically have the data, the analytics and the market presence.
Funding News
Why interesting: ?Many quant organizations, both in the traditional as well as alternative investment management space want to explore how much more effective that might be in managing their own strategies, as well as devising new ones based on applying different machine learning and AI models. While larger firms probably can explore such capabilities from the ground up, as can those entities that are heavily invested in Quant Trading, for those with more limited people and system’s infrastructure Axyon.AI could be the answer. The size of the funding round doesn’t suggest yet to me that the platform has created through its operational model and distribution huge traction, but clearly some of the work it has been doing with InG and Unicredito in Italy are achieving results in productization that could potentially scale more than those that often come from pure research and consultancy organizations.
Why interesting: ?Marstone is about helping financial institutions, with and without internal investment management capabilities build and support personalized portfolio solutions for retail wealth clients at scale. They have built significant integrations to support creating solutions that can, in theory, help align clients, through advanced aggregation, to portfolios that match with their risk tolerance and capacity for loss. Their approach is designed to both leverage internal capabilities, including regulated service provision, as well as integrate specific 3rd parties across the entirety of the value chain, which means in theory clients can acquire the best of both worlds from the solution design, as well as a much lower timeline and cost to implement.? This should be appealing to a certain size client bank, both in the US and across the Americas, and indeed this is where the initial clients sit.
Norm.AI - https://fintech.global/2024/01/23/norm-ai-secures-11-1m-seed-investment-revolutionising-regulatory-compliance-with-ai/
Why interesting: ?In the Insurance and Investment industries in the United States, as well as in Investor relations, federal regulations, particularly as they relate to the provision of healthcare, climate and consumer duty of care related services are not only particularly complicated but also include a large number of highly specific rules for consideration under different circumstances. ??This backdrop would appear to present a particularly attractive environment for the application of NLP/Semantic modelling alongside with some of the capabilities that LLM models offer in terms of conversational interface, along with data extraction, summation and distillation capabilities. While Norm AI isn't the only provider to have recognized this, they are providing risk management and compliance teams with the ability to deploy a solution that can both assist as well as continuously learn through interactions with new regulatory input.
Why interesting: ?My attention was caught by this deal because Alinea Invest has an ambition to not only educate investors (particularly younger ones) on direct investing, but also to offer an approach that can blend sound investment thinking with personalized choice based on equity investment. ?The solution advertises a combination of human advisory and AI enabled inputs to build recommendations and supports this with an investment platform to deliver discretionary and advisory fulfilment, provided by Drive Wealth. The ADV report is about 1yr+ out of date, so I can only assume that the very small fractional accounts that the firm initially built with about 3000 early trialists (most of whom were paying a fixed account fee) has been approving and that newer account balances are developing above the $6k threshold thus incurring the 1% wrap fee charge.? When one considers that the risk appetite of younger investors, esp. in States like NY, Texas, Illinois, and California, seems to be significantly higher (given the over allocation to crypto assets) it will be interesting to watch how Alinea Invest progresses based on their value proposition which is much more akin to that of a traditional RIA, but with a mobile first, digital, and non-planning focus.