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Financial services

Financial services

The financial services sector saw the highest level of M&A activity for 7 years in 2016, in terms of completed deal values. The volume of completed deals also remained resilient, albeit slightly down on the record number of deals completed in 2015.

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The financial services sector saw the highest level of M&A activity for 7 years in 2016, in terms of completed deal values. The volume of completed deals also remained resilient, albeit slightly down on the record number of deals completed in 2015.

“There has been a drive for consolidation in the market, whether that’s domestic or cross-border,” says Mark Flenner, Co-head of Global Financial Services M&A, KPMG.

“The regulatory burden and associated costs are increasing, so companies are looking to spread that out across a wider base. At the same time, there are limited opportunities for domestic organic growth, so people are buying capability, buying product or they’re buying access to customers.”

“Valuations have also increased - buyers are paying a lot of money for the right business - and there has been a lot of private equity activity across the globe. Global pension funds, too, have been taking a more active principal investment strategy than they have done before,” says Flenner.

The insurance market accounted for several of the top deals in 2016, but there were relatively few deals in the banking sector, which is still facing a challenging environment, according to Silvano Lenoci, Corporate Finance Partner, KPMG.

“The banking sector continues to be under pressure. There are still a lot of local issues to work though. Not only in terms of new regulations like Basel IV, but also a general lack of capital. There’s also still a huge legacy on the non-performing loans side that represent an opportunity for KPMG for the next 3-5 years and where our market positioning is perceived as top provider in the industry by sellers and investors,” says Lenoci.

Far Eastern buyers were particularly busy in 2016, with China, Hong Kong and Singapore filling three of the top five slots in terms of deal origination.

This expected to continue into 2017 when, despite the relatively low volume of announced deals, the level of M&A activity is expected to stay strong, particularly in the mid-market range.

“The big question financial services organizations are grappling with is ‘how do you find more customers?’ That’s the issue we expect to see driving M&A transactions over the next few years, particularly in sectors like FinTech. As long as there is weakness in certain currencies and interest rates remain low across the globe, it will naturally breed cross-border activity,” says Lenoci.

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