This bi-annual document prepared by the Global Deal Advisory Financial Services network gives an overview of merger and acquisition trends in the global financial services sector with a detailed analysis of potential opportunities.
We examine M&A trends in various subsectors such as banking, insurance, investment management and private equity within financial services for 1H20 while shedding light on recent deal activity. Additionally, we consider available FS opportunities/assets as identified by KPMG across the globe.
We believe it is an essential read for FS professionals and can serve as an effective M&A/business development tool and provides an insightful summary for decision makers across Financial Services in Corporate Development and M&A roles. Contact us for details on opportunities in your market and see how KPMG can help benefit your business.
During 1H20, the outbreak of COVID-19 has put significant pressure on the financial services sector, resulting in a steep contraction in deal volume by 11.5 percent and value by 26.6 percent as compared to the previous year period. With the given market turbulence, clearly investor confidence has been shaken and still remains low even as the focus of the major economies shifts from complete country lockdowns to restarting economic activity. Some later-stage acquisitions and divestitures were completed during the period, while others were put on hold or cancelled. Amidst this market gloom, few high value transactions were announced in banking and insurance sectors in first half of 2020 that kept the deal market activity relatively buoyant. In terms of FS potential assets available for sale, there appears to be no scarcity across the globe. Though most of the opportunities can be described as distressed with limited opportunities for empire-building deals.
Deal activity across all regions remained subdued, except Asia Pacific. Two notable high value transactions were seen in EMEA during the period lifting the deal value in the region. A drift in focus from M&A activity towards business operations and credit quality remained a key agenda for the US banks in first half of the year. A heightened need for scale hints at the growing need for domestic consolidation globally with particular focus in Europe, where the market is highly fragmented and most of the banks are profitably challenged. The COVID-19 pandemic has pushed banks to re-think ‘merger’ as an option to scale up in a low interest rate environment, gloomy economic scenario and to combat the rising levels of impaired loans. Moreover, the support by the regulators by easing scrutiny on such deal making is likely to pave way for further consolidation. With certain consolidation deals in making in Spain and Italy in 2H20, we may expect few pan European players to emerge soon.
Amidst the decline in overall deal volume, insurance sector witnessed massive uptick in deal value, owing to a European mega transaction (USD 30.1 billion). Insurance brokerage and insurtech emerged as prime acquisition targets, with former capturing ~ 70 percent of insurance deals in 1H20. With COVID-19, the capital base of insurers has been adversely impacted thereby providing further impetus to exit aging liabilities. The global run-off market is heating up, especially for non-life insurance assets.
Private equity recorded a substantial decline in activity owing to COVID-19, halting the pace of FS investments. The disruption has caused PE firms to prioritize the assessment of their portfolio companies. The drop-in valuations have pushed PE firms to pursue carve-outs and distressed-for-control transactions. Private equity firms are showing an opportunistic approach to acquisitions — with a keen eye to mid-sized firms requiring access to liquidity and capital.
In 2H20, we may see a temporary halt in deal making by financial institutions waiting for the economic uncertainty to settle. A V-shaped economic recovery appears unattainable, however, we may see some level of investors’ confidence to re-ignite. We expect more deals resulting out of structural and strategic changes rather than cyclical factors in the second half. Though the quantum of COVID-19’s impact will be hard to determine even in second half of the year and the risk of additional lockdowns is far more difficult to predict, the financial institutions may have to re-channelize their strategy in certain areas such as capital preservation, loan management, contingency measures, liquidity position and buffers, operational capacity, consumer communication and simultaneously start drafting a road-map for a post COVID-19 period.
As the initial wave of COVID-19 crests in many major economies, specialized investors are looking for opportunities in less impacted sectors. Strategic investors and private equity firms are showing an opportunistic approach to acquisitions — with a keen eye to mid-sized firms requiring access to liquidity and capital.