The realm of Fintech got hotter when Goldman Sachs, in the previous week, announced the acquisition of NextCapital. Goldman Sachs, the giant banking behemoth, growing its fintech strategy by acquiring NextCapital earlier this week. The sale price is reportedly $110 million and follows a successful pilot program with Goldman Sachs’ Private Wealth Management practice. As Goldman Sachs acquires NextCapital, it becomes obvious that this is yet another move by the investment giant to scoop up fintech companies.
The acquisition of Chicago-based NextCapital, a provider of automated advice to corporate retirement plans, was done without much buzz. While many deals have been announced to this point by Goldman Sachs involving the big banks acquiring or investing in fintech companies, most have been relatively small compared to NextCapital which was founded in 2013 (or 2014 depending upon the source) and has raised over $82 million from investors including FinTech Collective and Oak HC/FT, according to Crunchbase.
Goldman Sachs, in acquiring NextCapital, got access to the company's patented Advisor Engine technology. The technology creates automated investment advice for corporate retirement plans and has an AUM of $8 billion.
Goldman’s acquisition of NextCapital represents one of the largest M&A deals in the fintech sector this year and signals Goldman’s commitment to being at the center of the disruption occurring in financial services. To be sure, it’s not every day that a major player has to come back into the market to acquire talent. This is doubly so when it concerns technology.
As part of the deal, NextCapital CEO Mike Sha will become a partner to Goldman’s private wealth management unit, according to a press release from NextCapital. Management at Goldman Sachs is pretty high on what Mr. Sha and his team plan to do in retirement plan advice as it aims to address a significant market need for financial services that are more cost-effective for clients.
The size of the deal is unconfirmed, although it has been rumored to be between $200 million and $250 million.
Goldman Sachs is working with NextCapital to expand its retirement offering to clients. The two firms will collaborate on the cultural and technological aspects of NextCapital to make it more scalable for workers and expand products for employers.
NextCapital brings to Goldman a customer service platform that helps banks and credit unions manage their lending activities. In a press release announcing the acquisition, Goldman stated its intention to work with NextCapital to "help financial institutions of all sizes provide cost-effective solutions that positively impact consumers' lives."
NextCapital, an Austin-based investment start-up, is among one of five acquisitions Goldman has made over the last year. NextCapital uses algorithms and automation to allow users to invest in retirement funds. Acquisitions have always been an important part of both innovation and growth. That’s especially true today as an increasing number of companies opt to buy software rather than build it – a process that would take far longer and require more resources than a simple acquisition would. Moreover, financial institutions have been increasingly worried about losing their grip on consumer data as the public moves away from branches and into self-service platforms. Goldman Sachs – now owned by Wall Street-friendly Michael Bloomberg, and rumored to be going public soon – is upping its investment game through its acquisition of NextCapital, a new Robo-advisor.
The entire Fintech sector is curious about the acquisition and, in fact, has been keeping an eye on Goldman Sachs’ investment activity since its most recent high-profile years-long tech dry spell ended in late 2018, and their investment activity started picking up again starting in late 2018 and the bank backed 30 startups in the fourth quarter of 2019 alone. In Q1 of this year, it wrote checks to 17 companies, according to Crunchbase data, including to a few that TechCrunch has covered including corporate spend startup Ramp, tech-enabled homebuilder Homebound, and Indian food delivery giant Swiggy.
Goldman Sachs has continued its strategy of strengthening its technology offerings via the acquisition of another company. Goldman Sachs has set up a dedicated venture-capital fund to invest in FinTech startups. The Wall Street titan has made a handful of small investments in the space over the last few years, but this is the first time they've created an internal fund specifically for that purpose. Bloomberg reports that Goldman will spin out its VC fund as its own stand-alone operation within its startup accelerator, which focuses on tech companies.
The week overall has been pretty stimulating for the Fintech sector.
Goldman Sachs has bought another fintech startup, while Chinese private equity firm Rong360 revealed that it was investing in the financial services sector. Capital One updated its BaaS platform, which includes a new Python SDK, and Fast Technologies announced a new version for its cloud platform. As Goldman Sachs acquires NextCapital this can very well be an indication for the big banks to beef up their digital investment arms to assure their future as technology and consumer behavior sweeps through the financial industry.
Since 1869, Goldman Sachs has been helping our clients transform the future and grow. As a leading global investment bank, we provide innovative capital raising, advisory, and risk management services to corporations, financial institutions, governments, and high net worth clients around the world. They believe progress is everyone’s business. That’s why they commit our people, capital, and ideas to help their clients, shareholders, and the communities, they serve to grow.
NextCapital is the leader in digital advice platforms, offering solutions designed to help everyone retire successfully.
NextCapital is the leader in digital advice platforms, providing solutions designed to help everyone retire successfully. NextCapital partners with financial institutions to deliver personalized planning and managed accounts to investors across multiple channels, including 401(k), IRA, and taxable brokerage accounts. The firm's open-architecture digital advice solution provides integrated account aggregation, analytics, planning, and portfolio management, and allows partners to customize advice methodology and fiduciary roles.