How FinTech Affects Corporate Takeover Markets

Investment in financial technology, or FinTech, has increased dramatically over the past decade – from a total value of $9 billion worldwide in 2010 to well above $100 billion in recent years, with a peak of $215 billion in 2019. In addition to investments from venture capital, private equity, and public equity firms, companies have spent substantial amounts on acquiring disruptive technologies through mergers and acquisitions. For example, digital-payments platform Square, founded by Twitter co-founder Jack Dorsey, acquired the FinTech firm Afterpay in August 2021, resulting in Australia’s biggest-ever takeover. Goldman Sachs acquired FinTech firms United Capital in 2019 and Folio Investing in 2010, its largest acquisitions in 20 years.

There are several ways firms can transform their businesses to adapt to changes in consumer behavior and in the economy. While some firms develop through internal research (Wernerfel, 1984), others obtain cutting-edge technologies by acquiring innovative firms (Phillips and Zhdanov, 2013). Hence, FinTech firms are increasingly attractive as merger targets. Since FinTech innovations are valuable for firms (Chen, Wu, and Yang, 2019), FinTech targets may create value for combined firms after mergers.

These developments raise several questions. Are FinTech firms more likely to become targets? Do firms adopt disruptive technology through mergers? How valuable are FinTech mergers? Do FinTech deals reshape resource allocation in related industries? In a new paper, we tackle these questions by providing the most evidence yet on FinTech mergers.

We overcome the absence of a standard definition of FinTech firms or FinTech deals by examining  the text in firms’ disclosure and using a text-based algorithm to classify FinTech firms. We define a FinTech deal as a merger with a FinTech firm. We find that the number of FinTech firms has increased substantially over the past two decades. We also find  that the number of FinTech mergers and acquisitions increased sharply during the Great Recession and in each subsequent year until the COVID-19 pandemic.

We start by determining how attractivene FinTech firms are in takeover markets and find that they are involved in more transactions than non-FinTech firms are. Our results are statistically and economically significant: There is a 35 percent greater probability that a FinTech firm will be a target than a non-FinTech firm will.

We also document that FinTech deals create value for shareholders in the combined firms and, more importantly, the stock markets react more favorably to FinTech deals than to non-FinTech deals. We measure the market reactions as the weighted average cumulative abnormal returns (CAR) of target and acquiring firms within a [ – 1, + 1] day window around deal announcements. We find strong evidence that investors react positively to the FinTech deal announcements, leading to a 2.15 percent rise in the combined CAR. On average, the value creation of FinTech deals exceeds non-FinTech deals by a significant margin – 90 bps combined CAR. In addition, investors exhibit greater confidence in the combined firm when the acquirer is also a FinTech firm prior to the deal announcement, suggesting that synergies can be achieved more efficiently when both the target and acquirer have FinTech expertise.

We next determine what factors drive these deals. Mergers and acquisitions are essential strategic investments through which firms can reshape their businesses. For example, a traditional bank prone to cybersecurity attacks may acquire a FinTech target that specializes in cybersecurity protection and establish a cybersecurity arm within the firm. The bank can also take over a firm with expertise in secured online payment platforms and transform itself into a FinTech firm in order to compete with new competitors. Hence, we examine whether acquirers become FinTech firms after acquiring FinTech targets. Our findings show that the acquirer is more likely to become a FinTech firm in the year following the deal announcement. The results hold for deals that diversify companies as well as for deals that concentrate their business focus.

Next, we explore the spillover effects of FinTech deals: the impacts on rivals for acquirers or targets. Rivals may feel competitive pressure to take advantage of the synergies that FinTech mergers can create and, for companies seeking to be acquired, becoming a FinTech firm through merger can make them more attractive targets. To this end, we analyze how the market reacts to peers of companies that engage in a FinTech merger. Around the deal announcement, rivals of an acquirer are more likely to have positive abnormal returns if the acquirer is involved in a FinTech merger. Similarly, the target peers have a greater probability of prompting a positive market reaction if the target is a FinTech firm, suggesting that investors believe these peers are potentially valuable targets. Lastly, we explore how FinTech deals reshape the target’s industry. We discover waves of FinTech mergers in the target’s industry when the FinTech target is acquired. These waves occur in the first, second and third years following FinTech deals, supporting the conclusion that peers of FinTech targets peers are attractive in the corporate takeover market.

Our paper is the first to show that FinTech mergers create more value for the combined firm and reshape resource allocations in related industries. Our paper overcomes the challenge of identifying FinTech firms and FinTech mergers using a text-based algorithm on corporate disclosure. Our findings indicate that FinTech makes firms more attractive in takeover markets and so provides gains for shareholders through mergers. Our paper also sheds light on how FinTech creates merger waves in a target’s industry.


Chen, Mark A., Qinxi Wu, and Baozhong Yang, 2019, How valuable is FinTech innovation? Review of Financial Studies 32, 2062–2106.

Phillips, Gordon M., and Alexei Zhdanov, 2013, R&D and the incentives from merger and acquisition activity, Review of Financial Studies 26, 34–78.

Wernerfelt, Birger, 1984, A resource-based view of the firm, Strategic Management Journal 5, 171–180.

This post comes to us from Joanna Wang, a PhD candidate at Georgia State University’s J. Mack Robinson College of Business, and Alan L. Zhang, an assistant professor at Florida International University’s College of Business. It is based on their recent paper, “FinTech Mergers,” available here.