It’s an exciting time for mergers and acquisitions (“M&A”) in financial technology (“fintech”). Buyers and sellers abound, the number of transactions continue to pile up, and “fintech” has become a sine qua non in the lexicon of every sentient private equity, venture capital, and strategic investor.

The ferocious appetite for fintech properties combined with the frequency of consummated M&A deals has created the perception that everyone who owns and sells a fintech platform is a winner. Just in the past month (February 2017) the following fintech M&A transactions have closed:

*TA Associates acquires Retriever Medical/Dental

Prepaid Financial Services acquires Spectre IT

Evertec acquires EFT Group

Paypal acquires TIO Networks

Klarna AB acquires Billpay

                                      * Preston Todd Advisors’ transaction

These (above) are all highly touted transactions, and taken in their entirety, they continue to feed the “can’t lose” perception for owners and sellers of these types of properties: to have developed a fintech platform is tantamount to a successful exit or financing event. But the perception belies the reality. Like any other sector, fintech has its share of unsuccessful endeavors and busted deals.

We don’t often hear of the failures, and we shouldn’t expect to any time soon. But that’s of little consequence. What is important to buyers and sellers of fintech properties aren’t the names of the unsuccessful go-to-market attempts and transactional flops, but the reasons that caused them. And though the reasons “why” are manifold, there are three primary reasons that all buyers and sellers should have on their respective radars…

Top 3 Reasons Why FinTech M&A Deals Don’t Happen

1) Build vs. Buy: The “build or buy” question is ubiquitous throughout the technology sector as a whole, and one that merits the particular attention of would-be fintech acquirers. When seeking growth through strategic investment in fintech, a company must weigh the cost of acquiring a fintech asset against the cost of building or developing the same or similar technology itself. In addition to cost, a company must also consider the timeline – it’s not just about the dollars spent, it’s also about the time required to bring the technology asset online and benefit from the added value. Thus, if you’re a seller positioning your fintech property for a big pay-day, be sure to have a comprehensive understanding of the resources of prospective buyers – if they can build your technology in a comparable time frame for a reasonable price, the probability that they’re going to procure the same fintech through acquisition is remote.

2) Valuation: Getting to a valuation that both buyer and seller agree to is always a challenge, especially with technology properties that are often pre-revenue or marginally profitable. Add the additional layer of the “can’t lose” perception that has evolved in fintech, and bridging the valuation gap between buyers and sellers becomes a real challenge. When a seller approaches a transaction with the psychology that they “can’t lose”, there’s going to be a problem. Buyers, for their part, experience frequent frustration locking down fintech valuations because there isn’t any real “science” for modeling out pre-revenue and / or marginally profitable fintechs. That being said, deals continue to get done, but buyers don’t like being in the position of justifying to their boards or investors why 50-80% of an acquisition cost is attributable to “good will”.

3) A Solution without a Problem: In the parlance of my soon-to-be tween, “seriously”? Unlike reasons one and two, this particular reason is much more specific to fintech as opposed to the technology sector writ large. Understanding that fintech is (generally) the use of technology to move money, process financial transactions, and facilitate more efficient commerce, it stands to reason that a new technology that enhances any one or combination of these processes should have inherent value. But that is not true. There are a lot of fintech assets out there that can perform any one of these three tasks, but lack any semblance of practical utility. So it’s not just about the “what” or the “how”, it’s also about the “why”. Innovators ought to understand the scope and magnitude of the problem that their fintech platform is supposed to solve before they write that first line of code, otherwise they risk becoming an owner / operator of a fintech property that the no one in the marketplace will ascribe any value to.