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Surge in cross-sector M&A

Surge in cross-sector M&A

The rise in deals involving non-traditional buyers reflects sector convergence and a push for diversification and efficiency.

A new breed of buyer is shaking up the global financial services M&A space. Since 2012, the proportion of acquirers from outside the sector has risen by two-thirds to 15 percent — and is set to increase further.

Where are they coming from?

  • A growing number of these buyers are from Asia — particularly China — representing about 40 percent of the total deals involving non-financial services bidders in 2017.
  • Many of these new, cross-sector acquirers are conglomerates, often from the construction and real estate, industrial, technology and energy sectors.

Investors have a range of motives for venturing outside their traditional industries:

  • Increase their exposure to the financial sector
  • Cross-sell financial services products and services to existing clients
  • Source of low-cost rapid finance
  • Risk management capabilities

Convergence is influencing the financial services deal market

Possibly the most interesting, emerging deal rationale comes from sector convergence, as the lines between financial services and an increasing number of industries become blurred. Our full report (PDF 175 KB) looks at various examples from a wide host of sectors:

  • Construction and real estate companies are seeking to gain a source of in-house funding.
  • Services firms are considering sector-related leasing firms to extend its service value chain.
  • Technology players are interested in fintech businesses to access the capability to better service financial services firms.
  • Services firms want to expand their investment resources and know-how, and to boost their commercial lending and leasing ability.
  • Healthcare companies looking at health insurance companies as a way to horizontally integrate.
  • Leisure and media companies are showing interest in financial services for diversification and to achieve additional income stream.

New horizons bring new challenges

Those buyers unaccustomed to the highly regulated world of financial services are likely to encounter a steep learning curve, as they attempt to maneuver the complexity of compliance. They may find that help is needed to keep abreast of constantly unfolding regulations, to avoid fines and reputational damage. Indeed, with the exception of the larger Chinese conglomerates, a substantial proportion of nonfinancial services buyers are relatively inexperienced in M&A overall, and may require a degree of handholding to progress through the entire deal cycle to a successful integration and separation.

From a cross-border perspective, the other major challenge facing acquirers is the talent gap; in particular retaining (or recruiting) people with the skills and experience to navigate China and other foreign markets, to help address the inevitable differences in practices and cultures -- and the conflicts that can ensue. Such problems are compounded in cross-sector M&A.

With fintech erasing the lines between financial services and other industries, and industrial and construction firms re-evaluating their value chains, we expect the trend in cross-sector deals to continue. As always, the winners are likely to be those that can realize value quickly through careful targeting and incisive execution, and who appreciate the importance of careful integration, especially when managing conflicts between foreign delegates and local management.

Who's buying into financial services?

Estimated share of different sectors converging into financial services.

Estimated share of different sectors converging into financial services.

How can KPMG help?

At KPMG firms, we think like investors, looking at how opportunities to buy, sell, partner or fund a company can add and preserve value. Our teams of specialists combine a global mindset and local experience with deep sector knowledge and superior analytic tools to help you navigate a complex, fragmented process. KPMG professionals can help with business strategy, acquisition strategy, plans for divestments or for raising funds.

Download the report (PDF 176 KB) or speak to one of KPMG's integrated specialist with global and sector experience.

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