Market dynamics will keep the banking M&A transaction landscape buoyant for second half of 2020 and 2021. A mixed outlook at a regional level is expected. Though a positive momentum is anticipated for Asia Pacific deal landscape, Europe is expected to see a setback in deal activity. Similarly, the US transaction market is also likely to remain subdued for the coming quarters. A detailed analysis of each of the regions can possibly help our clients to re-think their strategies amidst these uncertain times.
Uncertain conditions offer springboard to deals
In 2019, the very conditions that were expected to dampen M&A appetite led to actual growth. Therefore, there are plenty of reasons to be (cautiously) upbeat in H2 2020 despite COVID-19, such as an increase in domestic consolidations, scope of more rescue and restructuring deals, a surge in digital transactions, ease of regulatory transaction barriers, increased collaboration between fintechs and financial institutions, PE and a thriving NPL market.
How are key deal drivers likely to impact the market?
Mega-deals kept the M&A market bubbling in 2019, supported by underlying growth drivers, low cost funding and strategic motivation. In the second half of 2020, a few large transactions may happen in core banking with adjacent or aligned sectors, such as payments, specialty finance and software companies servicing financial institutions, being far more active.
Asia–Pacific market retains optimism
Considering the economic headwinds caused by COVID-19, the emergence of NPLs may drive deal activity in the region in the latter half of 2020. Alongside this, fundamental macro drivers, including digital and mobile penetration, an emerging consumer middle class, growth in B2C platforms, and support for fintech business models, would provide deal opportunities as markets stabilize, particularly among the PE and alternative credit communities.
European deals to suffer from a lack of confidence
Across the European continent, a fall in market confidence in the wake of COVID-19 is likely to hit deal volumes. Where businesses are suffering from distress, there could be opportunities for buyers ― both existing market participants and PE ― to make acquisitions at attractive valuations.
Limited growth in the US
Faced with the market disruption caused by COVID-19 combined with flat interest rates and upcoming election uncertainty, growth opportunities in the world’s largest banking M&A market may be limited. However, distress created by COVID-19 may create unexpected deal opportunities for well-capitalized institutions.