Baird’s Michael Holgate: B2B tech adoption within payments on the up

Andrew Ferguson and Michael Holgate discuss Baird Capital’s investment in Freemarket and wider financial services trends.

Baird Capital will focus on growing fintech platform Freemarket internationally, aided by long-term demand drivers in financial services and increased tech adoption in B2B cross-border payments, partners Michael Holgate and Andrew Ferguson told PE Hub Europe.

Freemarket provides B2B cross-border payments through its proprietary technology platform that enables its customers to send payments and funds to over 100 countries in 140 currencies. Private equity firm Baird today announced a growth capital investment in London-based Freemarket, providing a partial cash-out to existing shareholders.

“The B2B payment segment has lagged behind B2C from a technology adoption perspective, but as digitalisation increasingly permeates the business landscape, B2B tech adoption within payments is increasing,” said Holgate.

Growth in the B2C payments market was further accelerated by the covid pandemic, according to Holgate, and specialist technology businesses such as Wise and Revolut have grown heavily off the back of these structural trends. As for B2B, corporations have recurring business-as-usual cross-border payment needs that are increasingly being delivered through specialist technology payment platforms such as Freemarket, according to Holgate.

These tailwinds will aid Baird to focus on Freemarket’s international expansion. As the B2B cross-border payments is global by nature, Holgate sees sizeable opportunities for further international growth.

Baird Capital has offices in Chicago, London and Singapore and has raised more than $4 billion since 1989, investing in 338 companies. A global platform and reach were “major” factors in Freemarket’s selection process for an investment partner, said Holgate. The plan for Freemarket centres on focus and execution, to ensure the business continues to deliver on its clients’ needs, according to Holgate. “M&A targets exist but any acquisitions will be made on a selective basis to enhance platform capabilities, as opposed to scale plays,” he added.

Stealing the lunch

In the wider financial services sector, banks, insurance companies and asset managers have been laggards in adopting technology. “Some of those huge businesses are locked in legacy systems that were built in the ’60s and ’70s,” said Ferguson. “Here we are in 2023, and they’re competing against the new boys on the block.”

Large asset managers and banks also struggle to implement these changes with speed. Independent technology-first providers are “stealing the lunch” from these major providers, according to Ferguson, who added this is an opportunity Baird continues to see and like.

Larger providers must look at the more significant areas of their businesses first, providing an opportunity for a myriad of smaller providers to come in and “nibble away” at the market, according to Ferguson.

The nimbleness of these smaller providers seems to be the key. Regulators are putting pressure on big banks and insurers to be stable businesses, according to Holgate. “They also put red tape around them, dictating what they can and can’t do, which again inhibits them being able to be nimble and bring in technology at the speed they want to,” he added.