Here’s when the fintech ventures tripled their global investments to 12.21billion USD. Clearly, since then the fintech industries have taken root in the revolution of digitization and blockchain technology. The early innovators accepted the challenges and the financial services industries took bold engaging steps to get them there.
Accenture reported their insights into the common themes needed for reimagining the fintech sector as openness, investment, and collaboration. Prophetic words and insights!
Cut to the present!
“Fintech banks all set to be scrutinized heavily by relevant regulators.” Is the latest shock to the growing fintech industries.
Fintech ruled the last half decade and emerged the most successful multi-billion dollar worth industry innovation in the financial world which can potentially disrupt and transform the way money is spent.
With the aim of developing faster-advanced systems for payment, the success of Fintech led to real-world banks totally powered by such innovations. Revolut, Monzo and such companies led the revolution’s success and the market was burgeoning with others who wanted to start such fintech banks and numerous applications targeted to make that possible. That’s when the ‘openness’ criterion apparently overstepped its boundaries and the regulators began taking a hard-stance in going slow with the green-light for such banks. Currently, their scrutiny is pretty stringent with the ultimate goal of ensuring fintech banks unscrupulous few do not cheat their customers.
Openness:
Transparency, customer trust, and openness are the core of the revolution where fintech innovation, digital technology and a lot of money is invested. Large organizations have the resources and knowledge capital to engage with such revolutionary technologically innovative solutions and change their culture and organizational structure to scale profitability very rapidly. They invest their assets, intellectual properties, and skilled resources to open up newer areas of services and products where customers are invested.
When the banks and financial services sectors grow explosively there are many who jump onto the bandwagon to unscrupulously make a profit at the expense of the customers. Scrutiny, regulation and heightened awareness is thus natural, essential and should be mandatorily undertaken. The PRA- Prudential Regulatory Authorities has rightly clamped down to take the necessary measures. The yearly approved proposals till Feb 2019 were just 4 compared to 12 licensed proposals in the previous year!
Investment:
Innovation, industrial growth and the promotion of financial systems never grow in isolation. Venture investing, capital markets and such are also invested in such fintech banks and industries. More than ever, the present trend is to focus on the immensely popular and profitable fintech innovations and even governments are not far behind in offering sops to the growing industry.
The decrease in the fintech banks approvals makes it very clear that the PRA means business. James Borley of PRA was quick to clarify that this was not a rap on the knuckles of an industry that is booming. Rather the stringent scrutiny measures are meant to ensure the dubious proposals stay out and transparency and openness encouraged while protecting the investors.
Collaboration:
The platform of fintech is a unique example of collaboration between two areas where traditionally there was none. Technology and finance both traditionally collaborated and shared process within their own areas. Fintech effectively opened up the rush for all industries to collaboratively partner in the quest for newer ideas, market opportunities, reduced costs, and increased value. With the PRA’s action collaboration will now have to be more effective, across diverse industries and outlooks to ensure value generation.
According to the PRA, they are encouraging increased inter-bank competition and will encourage the new bank players with a careful eye on scrutiny measures. The PRA challenges to approval can be easily gotten over with being prepared for ensuring the process does score on openness, transparency and investment protection.
Embracing scrutiny on all the above counts can create the foundation to disrupt their business models. By active participation, they do not need to sideline their core models for challenger non-core models where they could be relegated to the sidelines.
Concluding notes:
It is definitely going to be uphill to get fintech bank approvals from the PRA watchdogs. The very pace and rate of fintech disruption have meant that banks have altered their models to introduce new-age banking and a bouquet of services. Newer banks and services mean a boom in the need for trained professionals, training and better use of data analytics and customer insight.
If you are interested in a Fintech Career try the Imarticus Learning Academy who believes heightened scrutiny always makes better fintech banks.
Day: June 19, 2019
Which Are Some of The Good Books On Financial Analysis For The Purpose Of Equity Valuation?
Pursuing a financial analysis course, currently working in the finance team of a firm or looking to make a career in the finance domain- it is important to gain complete knowledge of valuation and finance before working in the market. There are undoubtedly many sources to learn about valuation, however, if you prefer reading a book rather than attending a seminar or webinar, then here is a list of top books on valuation.
1. The Intelligent Investor by Benjamin Graham
Long considered as one of the most important books written on investing and valuation, the book has great quotes from the author that motivate you into a career in finance. If you have enrolled in a Financial Analyst Certification course, then this book is a must read to enlighten you about the strategies that will help you reach your goals. The concepts of value investing are explained in detail and most aspects of technical trading have been covered in the book. The book is the Bible of Finance and must adorn your bookshelf if you are thorough finance professional.
2. Theory of Investment Value by John Burr Williams
The book first printed in 1938, revolves around the idea that stocks are worth the present value of the dividends that are paid perpetually. The book highlights the investment value of a stock as the net present value of the future dividends it will reap. It features the highly popular, Discounted Cash Flow technique, which is the edifice of business valuation whilst making investment decisions.
Warren Buffet, the reputed investor was highly impressed by the book and the book features two major principles- the intrinsic value of a business can be taken out of discounted value during the course of its lifetime and a business that can afford to invest it’s earning at a higher rate than the applied discounted rate if it can afford to.
3. Measuring and Managing the Value of Companies by McKinsey & Company Inc
One of the best guides for corporate valuation, the book has been co-authored by Tim Koller, Marc Goedhart and David Wessels. The book solidifies the proven principles of value creation by negating the myths that prevail in the financial world.
The book equips executives to make a value-creating decision with case studies that analyze the historical performance of a company and then redrafting it to take a closer look at the performance. The book covers the topics of linking a company’s valuation multiples and estimating the cost of capital with practical tips. A must-have for investment bankers and investors to make pragmatic decisions.
4. Damodaran on Valuation: Security Analysis for Investment and Corporate Finance by Aswath Damodaran
A gifted professor and an authority on valuation, Aswath Damodaran delves deeply into three basic approaches to valuation which are discounted cash flow valuation, relative valuation, and contingent claim valuation. The book is filled with real-time examples of many international firms that deepen your understanding of the advantages and disadvantages of every model to help reader’s judge complex valuation scenarios.
5. Equity Asset Valuation by John Stowe
The book is a good read because of its coverage of finance and accounting concepts with every topic treated in detail for the benefit of the reader. It is good for students who want to strengthen their concepts of valuation before stepping into the finance domain. Most examples used to make it useful for finance students to learn the concept of implementing intrinsic stock valuation.
Half Yearly M&A Roundup 2019
The acquisitions and mergers started just seven days into the year. 2019 saw the start-off with two deals running into billions of dollars with one of them at a record USD 82 billion. The deal was among the all-time top ten!
Fourteen deals in the biopharma sector took the M and A total to USD 173.326 in billions for the half-year according to the CRG- Chimera Research. While CRG does not add the deals in technology and tools in the sector in this figure, the tech and tools M and A deals had 2 with a total of USD 22.7 between them. Again, the deals completed and announced earlier like Takeda Pharmaceuticals purchasing of Shire at GBP 46 billion is not factored in these figures.
If one looks at the top ten bio-pharma announced/completed M and A deals the half-year statistics show a total value surpassing the USD 250 billion marks very easily. In comparison to the half-year statistics of 2018 valued at USD 170.2 in billions over the top ten deals 2019 has a 47 percent increase in value according to the GEN’s List January-June 2018 Top 10 M and A Deals.
According to Deloitte’s Center for Health Solutions, the key factor responsible for the R and D in the biopharma sector is that traditional methods like in-house R and D have shown poor ROI. In keeping with this trend, the fall recorded was 1.9 percent in 2018, in 2017 3.7% and in 2010 10.1% when Deloitte started the study. Deloitte attributes the decline to the increasing median costs for gaining market approvals especially for treatments that are new. Such diminishes in the ROI effectively mean drug developers use M and A to fill their pipelines and expend the range of portfolios of marketed drugs where they face an exclusivity loss.
In keeping with this premise, the May 8th deal of Novartis’ buying IFM Tre, saw 2 programs of the non-clinical type and 1 of the clinical type in the pipeline expansion. The programs focus on inhibiting targets related to chronic inflammation of the underlying immune system. This large deal was considered too small to be reflected in the list of Gen A’s top-10. And this deal was valued USD 1.575 billion!
The top tech/tools deals:
Here’s a peek at the deals that found a place on the list by Gen A.
- Catalent bought Paragon Bioservices’ gene-therapy capacities at USD1.2 billion completing the deal on 19th May.
- Clementia Pharmaceuticals’ buying-license of 2014 for a drug treating rare diseases from Roche, was acquired by Ipsen and the deal completed on 19th April was valued at USD 1.31 billion.
- The pending merger of Pacific Biosciences with Illumina valued at USD 1.2 billion was anticipated to be delayed. In this case, the Authority for Markets and Competition in the UK flagged on 18th June the issue of anti-competitiveness in its first phase of investigations which could now last another investigative round.
- Exonic Therapeutics was bought on 6th June by Vertex for USD 1 billion. Vertex plans to cash in on the genetic neuromuscular diseases range and the CRISPR-based Duchenne muscular dystrophy treatment was just right for it.
The Gen A’s list:
The top M and A list in the first six months of 2019 include the value of the deal in USD, with details of the acquirer, acquire, deal status, and the reason for the deal. The details therein are in keeping with tech/ tools and drug developer’s disclosures. Only whole company purchases are considered excluding specific drug rights like the Astra Zeneca deal of USD 6.9 in billions for global commercialization and development of DS 8201 aka trastuzumab deruxtecan through Daiichi Sankyo’s agreement, and the 1st July purchase deal of Novartis from Takeda of 5%- lifitegrast solution for ophthalmics-Xiidra®.
The list of the top ten includes:
- The 24th June Bristol-Myers Squibb’s acquisition of Celgene for USD 74 billion.
- The 25th June AbbVie’s acquisition of Allergan for USD 63 billion.
- The 7th January Takeda Pharmaceutical’s acquisition of Shire for USD 58.6 billion.
- The 25th February Danaher’s acquisition of GE BioPharma for USD 21.4 billion.
- The 17th June Pfizer acquisition of Array BioPharma for USD 11.4 billion.
- Eli Lilly’s 15th Feb acquisition of Loxo Oncology for USD 8 billion.
- GSK’s 22nd January acquisition of Tesaro for USD 5.1 billion.
- Roche’s 10th June acquisition of Spark Therapeutics for USD 4.8 billion.
- The third quarter scheduled Merck & Co acquisition of Peloton Therapeutics for USD 2.2 billion.
- The 1st May completed Thermo Fisher Scientific acquisition of Brammer Bio for USD 1.7 billion.
In parting, if you are impressed then come to Imarticus Learning for a career in M&A.