Strength in the storm , KPMG’s annual analysis of the top 10 banking M&A trends, focuses on the key developments that will shape the financial services industry in 2017.
2016 was not a record year for deal activity in the global banking and capital markets space. Even though the industry’s underlying fundamentals remain relatively unchanged, the operating environment became much tougher. We had predicted a higher level of deal activity in 2016; however; we witnessed a stable deal market. Continued regulatory pressures combined with various geopolitical and economic events, such as the US election, Brexit, the low interest rate environment and the economic downturn in China created an environment of uncertainty that lingered over the global markets and kept investors cautious.
Deal value and volume remained relatively stable compared to 2015. Domestic deals were a predominant feature of 2016 (with a share of 73 percent of total deals) largely seen in the US and China. The majority of deal activity was concentrated among the small and medium-sized banks; continued regulation inhibited acquisitions by the large global banks. Chinese and Japanese players focused more on regional/domestic growth and remained less active in overseas acquisitions. The year nevertheless witnessed a few mega-deals — stock exchange merger (London Stock Exchange and Deutsche Boerse), acquisition of regional Crédit Agricole banks by Sacam Mutualisation and merger between National Bank of Abu Dhabi and First Gulf Bank. Most of the high-value deals were centered around ‘merger’ as a mode to improve financial strength, build expertise, global network and synergies.
As the dust from the political uncertainty settles, we expect a reasonably healthy level of M&A in 2017. With President Donald Trump’s administration, interest rate hikes (actual and expected) and talked about relaxing of regulation, some pressure on the local US banks is expected to release. Additionally, the overall deal activity is likely to pick up pace, specifically with regards to banks eyeing fee-based businesses, the European Central Bank (ECB) encourage further consolidation as overcapacity at European banks remains an issue, continued non-core disposals by global banks, regional deals in Asia-Pacific, increased liquidity in market enforcing continued demand for fintech innovation and active NPL markets driven by weak balance sheet of banks. At the same time, we expect the emergence of new non-financial services buyers, from private real estate, diversified industrials, technology and funds, to change the competition landscape.