Analysis: JPMorgan’s 2021 deal spree aims to fill the few remaining gaps in its global operations
NEW YORK, Sep 22 (Reuters) – JPMorgan Chase & Co (JPM.N) is on a boutique shopping spree this year and has acquired or invested in around 30 companies since early 2021.
In September alone, the bank acquired nearly 75% of Volkswagen’s payments business, bought the media company that belongs to Zagat, and on Tuesday bought a college financial planning platform used by more than 5 million students in the United States. Continue reading
These three transactions illustrate the contours of JPMorgan’s dealmaking strategy, analysts and bank managers said: The largest U.S. bank fills the few gaps in its offerings without facing the regulatory hurdles that would almost certainly come with larger deals.
“These are bite-sized acquisitions that span a wide spectrum from payments to big data, have applications for AI, and deliver great customer experiences,” said Mike Mayo, Wells Fargo bank analyst.
“It’s another reason Goliath wins,” he added. “You can choose forward-looking, niche fintech firms and scale them to their global franchise.”
While most of the deals and their terms are not public information, Reuters estimates that JPMorgan bought and invested in around 30 companies in 2021, according to data from Refinitiv, Dealogic and media reports.
The average size of deals the bank has done this year is less than at almost any point in the last decade, Dealogic noted, counting only deals where the value has been disclosed. The average transaction size last year was smaller.
It wasn’t until 2012 that JPMorgan closed more deals, according to Dealogic. The bank made 34 investments and acquisitions this year, again only counting transactions with reported values.
“The advantage of our franchise is our size,” said Leslie Wims Morris, who leads Chase’s corporate development. “It’s less about the size of the deal than about the strategic impact: What skills do we need and what experiences do we want to deliver?”
OFFERS IN RICH
JPMorgan is not alone in its efforts lately. Rivals also buy companies or stakes in companies that thrive on algorithms, apps, data and a specific attraction to coveted customers in markets where they have no mainstay.
For example, Goldman Sachs Group Inc (GS.N) bought home finance lender GreenSky for $ 2.2 billion last week, and on Tuesday Wells Fargo & Co (WFC.N) and Mastercard Inc (MA.N) got involved in one $ 60 million round of funding for Bilt Rewards, a credit card loyalty startup targeted at tenants.
While some of the deals are big enough to warrant the announcement of the purchase price, they are generally smaller and less meaningful than the megabank mergers that took place in the 1990s and 2000s.
US regulators have been reluctant to approve transactions that help the largest financial firms get bigger. This is especially true under the Biden administration, which has a stated policy of anti-competitive practices and whose Justice Department effectively overturned a merger between two major insurance brokers in July.
There is also a question of profitability in relation to size. The bigger US banks get, the more capital they have to hold for certain assets. Because JPMorgan is so large, it makes sense to target companies who can offer services for a fee or provide data on customer preferences, said Richard Bove, an analyst with Odeon Capital Group.
“JPMorgan does not want to increase its balance sheet, but its profits,” he said.
This momentum, combined with JPMorgan’s saturation in the United States, explains its 75% stake in Volkswagen Payments SA; the acquisition of UK digital asset manager Nutmeg; and a 40% stake in C6 Bank, a popular digital lender in Brazil, he said.
International investments also give JPMorgan an edge over domestic competitors like Citigroup Inc (CN), who have shed much of their global consumer operations, analysts said.
JPMorgan is also considering big deals, but some of the deals this year just came through faster, said Ben Hesse, the bank’s director of strategy & business development for asset & wealth management.
His department oversaw the recent acquisitions of ESG-focused fintech startup OpenInvest, forest manager and forest investor Campbell Global LLC, and a minority stake in Kraft Analytics Group, the sports-focused data analytics company.
“Just because we haven’t announced anything big doesn’t mean we haven’t looked at it,” Hesse told Reuters. “The bar for these things is just very, very high.”
Reporting by Elizabeth Dilts Marshall in New York Editing by Lauren Tara LaCapra and Matthew Lewis
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