M&A Predictor 2018: Global Financial Services | KPMG | BE
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M&A Predictor 2018: Global Financial Services

M&A Predictor 2018: Global Financial Services

M&A Predictor 2018: Global Financial Services

Challenges remain but we expect a year of robust M&A activity in the Financial Services sector as non-sector players - from private equity houses and pension funds to Chinese and Japanese conglomerates - continue to actively pursue deals. At the same time, look for interest in fintech-related deals to remain hot as banks and insurers strategically seek transformational technologies to remain competitive and growing.

We expect the value and volume of M&A deal activity in the Financial Services sector to increase by more than 10 percent for 2018 amid numerous positive factors that include: Strengthening G-SIFIs; proposed removal of barriers to EU bank mergers; increased focus on M&A to drive transformation in insurance; strength of the Asian and US economies; the increasing role of both private equity and new entrants to the market; and rising interest rates.

m-and-a-predictor-2018-fs-10-20year-trend-chart

The year was off to a promising start during the first quarter of 2018, with the value of deals rising to US$78 billion compared to US$55 billion in Q1 2017. Volume of deals in Q1 2018 was lower at 642 compared to 800 in Q1 2017. Average deal value was higher at US$121 million compared to US$68 million a year earlier.

“The ongoing flurry of US-based activity reflects the consolidation of the regional banking sector combined with private equity investors eagerly pursuing financial services assets,” says Stuart Robertson, Global Financial Services Deal Advisory Lead, KPMG in Switzerland. “At the same time, the trend in overseas acquisitions by Japanese financeinstitutions will continue, while China's easing of limitations and shareholdings by foreign investors should spark a significant increase in inbound investments there during 2018 and over the medium term.”

Stuart notes that private equity houses, private investors and pension funds, as well as Asian conglomerates, accounted for about 35 percent of 2017 deals. “The challenge going forward as we monitor this trend will be to determine who the big buyers are going to be in 2018. This unpredictability is adding a new and exciting dimension to the market.” (Source: Financial Services experience a surge in cross-sector M&A, KPMG International, 2018)

The level of private equity dry powder represents a huge opportunity across all regions in 2018, with a focus on deploying funds into all sectors of financial services, Stuart adds.

Regionally, beyond the action in the US, China and the UK, we anticipate increased consolidation activity in Germany, Italy, Indonesia and India. We expect major regulatory concerns to decrease as clarity, primarily over Basel IV, now emerges. Over the past years, banks have been very cautious about global expansion and focused more on their operating models with limited M&A focusing more intently on domestic and regional markets. Their strategies are focusing much more on M&A for 2018 and beyond.

“It's noteworthy that in 2017, about three-quarters of bank deals were in their domestic markets and this trend could continue, along with deals involving NPLs predominantly involving international buyers. At the same time, the intense focus on fintech and robo -advisory innovation will continue globally. There is a massive amount of liquidity sitting on the sidelines and waiting to be invested,” says Silvano Lenoci, Corporate Finance Partner, KPMG in Italy.

For additional insights into global 2018 M&A banking trends, please see KPMG's Continuing to Climb report.

On the insurance front, says Ram Menon, Global Insurance Deal Advisory Lead, KPMG in the U.S., there is also an abundance of capital to invest and insurers will continue to chase inorganic growth opportunities. “We expect 2018 deal activity to be very strategic, as the insurance industry  - like the entire financial services sector  - faces huge demand for transformation and innovation that will drive greater customer engagement and top line growth. The focus globally will be on deals that provide opportunities to transform business models, access emerging innovative technologies and modernize operating models.”

Reviewing 2017

The number of deals for the sector overall in 2017 was relatively flat at 3,020 compared to 3,072 in 2016, while the value of 2017 deals was US$253 billion, down 20 percent from US$318 billion in 2016. Results are in line with our 2017 Predictor outlook that noted continued pressure on the banking sector amid issues that included Basel IV, a general lack of capital and a large legacy on the non-performing loan side for the next few years.

The volume of 2017 deals in insurance was relatively flat (down 0.7 percent) while the value of deals increased by 128 percent. The 128-percent increase in insurance is largely the result of one megadeal that also proved to be the biggest deal of 2017 in the Financial Services sector. (Source: MergerMarket, KPMG analysis)

 

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