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Financial institutions M&A: Sector trends - July 2020

What's inside

July 2020

We highlight the key European M&A trends in the first half of 2020, and provide our insights into the outlook for M&A moving forward.

Introduction

The COVID-19 pandemic has ravaged the European financial services sector, sending shockwaves across the FIG M&A landscape. It is no surprise that M&A volumes have plummeted. Yo-yoing valuations, buyer conservatism and the promise of "cheaper" stressed / distressed opportunities have compounded a cavernous rift between seller and buyer expectations. Reality is slowly sinking in—as the possibility of a v-shaped economic recovery becomes increasingly bleak, concern is growing around whether IFRS 9 loss estimation is much more than educated guesswork.

But all is not lost. The resilience of established financial institutions, fortified in the decade since the global financial crisis, agility afforded by digitalisation and evolution of customer interaction with financial services have contributed to M&A hotspots which burn bright amidst market gloom.

In this edition, we hone in on those hotspots and highlight the key M&A trends across Europe and the UK. Focusing on Banks, Fintech and Other Financial Services, we also provide our insights on the outlook for M&A in H2 2020 and beyond.

Key highlights from H2 2019 include the following:

  • Banks: Surge in strategic M&A, post-easing of lockdowns, as pent-up deal-making prowess is unleashed.
  • Fintech: Financial sponsors demand more bang for buck, as equity valuation volatility wreaks havoc for funding rounds.
  • Asset/Wealth Management: Differing bank prerogatives drives deal-making— some European banks tag-out from non-core business lines, while others tag-in for stable returns.
  • Payments: Lockdown utilisation levels encourage cross-border operators to scale-up and private equity investors to pile-in.
  • Stock Exchanges/Clearing Houses/Trading Venues: Clash of the pan-European titans—M&A plans signalled by LSE, Euronext and Deutsche Börse.
  • Brokers/Corporate Finance: Thinning of the herd continues as "traditional" brokers struggle to remain profitable amidst encroachment by Bulge Bracket and disruption by fintech.
  • Consumer Finance: A time of temperance as COVID-19 covenant breach forbearance, payment holiday and repossession deferral relief measures take their toll.
  • Specialty Finance/Marketplace Lending: Panacea or plague—what will the true impact of accreditation for government-backed loan schemes be?

M&A Forecast legend

European financial services M&A trends

Europe's post-GFC leaner and better-capitalised banks are put to the test by the COVID-19 pandemic

Banks with stronger balance sheets capitalise on M&A opportunities amidst COVID-19 market turmoil, while their weaker peers consolidate to survive.

vault

As the technicolour gloss of unicorns fade, investors attempt to back the right horses

H1 2020 heralds an entirely new era for fintech, a market segment which scarcely existed at the time of the global financial crisis. Many founders and investors, who have enjoyed a bull run since 2015, have had their first taste of the bear markets which banks endured in the years following 2008.

Buckingham Palace gate details

Asset/Wealth Management

Differing bank prerogatives drive deal-making—-some European banks tag-out from non-core business lines, while others tag-in for stable returns.

stock market display

Payments

Lockdown utilisation levels encourage cross-border operators to scale-up and private equity investors to pile-in.

banknotes

Stock Exchanges/Clearing Houses/ Trading Venues

Clash of the pan-European titans—-M&A plans signalled by LSE, Euronext and Deutsche Börse.

bank

Brokers/Corporate Finance

Thinning of the herd continues as "traditional" brokers struggle to remain profitable amidst encroachment by Bulge Bracket and disruption by fintech.

stock display

Consumer Finance

A time of temperance as COVID-19 covenant breach forbearance, payment holiday and repossession deferral relief measures take their toll.

credit cards

Specialty Finance/Marketplace Lending

Panacea or plague—-what will the true impact of accreditation for government-backed COVID-19 loan schemes be?

stock market display
stock market display

Asset/Wealth Management

Financial Institutions M&A sector trends: Asset/wealth management — H1 2020 and outlook for H2 2020

Insight
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9 min read

Differing bank prerogatives drive deal-making—-some European banks tag-out from non-core business lines, while others tag-in for stable returns.

 

Overview

Current market

  • Consistent activity levels

We are seeing

  • Market consolidation as smaller asset / wealth managers consolidate in the COVID-19 climate— mostly smaller deals (>7 smaller UK deals), with a sprinkling of medium-sized deals
  • Differing bank prerogatives:
    • Some banks tag-out (e.g., Banco Sabadell's disposal of Sabadell Asset Management)
    • Other banks tag-in (e.g., Andbank's acquisition of Esfera Capital)
  • Specialist asset management sub-sector consolidation:
    • Fund platform (e.g., Clearstream's acquisition of 51.2% of UBS Fondcenter)
    • Debt servicing (e.g., Cerved's acquisition of 50.1% of Quaestio)
    • Trust administration (e.g., Intertrust's acquisition of Wells Fargo Trust Corporation)
    • Direct lending (e.g., Bridgepoint's acquisition of EQT's credit business)

Key drivers/challenges

  • COVID-19 exacerbates industry-wide pressure on profitability:
    • Customers tightening belts and reducing spend
    • Shift towards market-driven pricing on account of MiFID II fee transparency requirements
    • Increasing customer familiarity / confidence with WealthTech (Smarterly, Alpian, Capdesk and InvestSuite all successfully raised growth capital notwithstanding COVID-19 chaos)
  • Tagging-out:
    • Monetisation of non-core assets—wide potential buyer universe (e.g., local / foreign trade, PE and insurers)
    • Favouring lower-cost WealthTech opportunities (e.g., Hauck & Aufhäuser's wealth management partnership with Raisin)
  • Tagging-in:
    • Seeking stable returns (e.g., FNZ's acquisition of Irish Progressive Services International)
    • Tapping into new customer bases (e.g., J.P. Morgan's acquisition of remaining 49% of China International Fund Management)
  • Implementation of digitalisation strategies (e.g., Deutsche Bank's equity investment in Qplix)

Trends to watch

  • Stressed / distressed opportunities involving smaller asset / wealth managers with high cost bases
  • Consolidation amongst direct lenders / credit managers
  • Will the FCA's DP20/2 proposals for a new UK capital regime for investment firms level the playing field, or create winners and losers

Our M&A forecast

Consolidation activity to continue as COVID-19 exacerbates profitability pressures and turbocharges customer familiarity with more costeffective WealthTech options

 

Publicly reported deals & situations

BlackRock, Vanguard and State Street have seen their assets shrink by an estimated US$2.8 trillion in 2020 as a result of recent market chaos caused by the COVID-19 pandemic (FT - March 2020)

Market consolidation

Market highlight:

Tilney's and Smith & Williamson's successful merger to create Tilney Smith & Williamson, the UK's leading integrated wealth management and professional services business, with approximately £44 billion in AuM and co-investments from Warburg Pincus and Permira

Larger:

  • Tilney (UK): Acquisition of Smith & Williamson (September 2019)

Mid-sized:

  • PGA & Banco Santander Totta (Portugal): Merger of asset management operations (April 2020)
  • Credit Suisse Asset Management (Switzerland): Acquisition of AgaNola (March 2020)
  • ARA Asset Management (UK): Acquisition of majority stake in Venn Partners (March 2020)
  • Jupiter Fund Management (UK): Acquisition of Merian Global Investors (February 2020)
  • Denge Varlik and Deren Varlik Yonetim (Turkey): Merger of asset management operations (January 2020)
  • Amundi (Spain): Acquisition of Sabadell Asset Management (January 2020)

Smaller:

  • Pacific Asset Management (UK): Acquisition of Parallel Investment Management (June 2020)
  • Jupiter Fund Management (UK): Acquisition of Merian Global Investors (May 2020)
  • Andbank (Spain): Acquisition of Degroof Petercam's Spanish private banking business (May 2020)
  • Quintet Private Bank (Switzerland): Acquisition of Bellevue Group's wealth management business (May 2020)
  • Fairstone (UK): Acquisition of Goodman Chartered Financial Planners (April 2020)
  • Stonehage Fleming (UK): Acquisition of investment management activities of Cavendish Asset Management (April 2020)
  • Ascot Lloyd (UK): Acquisition of Ring Associates (April 2020)
  • Rathbone Brothers (UK): Acquisition of Barclays Wealth Management (April 2020)
  • Capitalworks PEP (South Africa): Acquisition of Peregrine Holdings (March 2020)
  • Hauck & Aufhäuser (Germany): Acquisition of Bankhaus Lampe (March 2020)
  • Mattioli Woods (UK): Acquisition of Hurley Partners (March 2020)
  • Ypsilon Capital (Greece): Acquisition of Attica Wealth Management (February 2020)
  • AgioFunds TFI (US): Acquisition of 30% of Symphony Wealth Management (January 2020)
  • eQ Asset Management (Finland): Acquisition of business of Best Global Ideas and European Small & Mid Cap (January 2020)

 

Differing FI prerogatives

Tag-out (disposals):

  • Bellevue Group (Switzerland): Disposal of wealth management business (May 2020)
  • Grupo Esfera (Spain): Disposal of Esfera Capital Gestion (March 2020)
  • Attika Bank (Greece): Disposal of Attica Wealth Management (February 2020)
  • Banco Sabadell (Spain): Disposal of Sabadell Asset Management (January 2020)

Tag-in (acquisitions):

  • Singular Bank (Spain): Acquisition of MG Valores (June 2020)
  • Andbank (Andorra): Acquisition of Esfera Capital Gestion (March 2020)

Tag-in (JVs):

  • Investcorp (Bahrain): Establishment of JV with Tages, Investcorp-Tages (May 2020)
  • BNP Paribas (France): Investment management integrated solutions JV with BlackRock's technology platform, Aladdin Provider (April 2020) 

 

Fund platform M&A

  • Netfonds (Germany): Acquisition of Easyfolio (June 2020)
  • J.P. Morgan (China): Acquisition of remaining 49% of China International Fund Management (April 2020)
  • Clearstream (Switzerland): Acquisition of 51.2% of UBS Fondcenter (January 2020)

 

Debt-servicing M&A

  • DoValue (Greece): Acquisition of 80% of Eurobank Financial Planning Services (December 2019)
  • Bogazici Varlik Yonetim (Turkey): Acquisition of Vera Varlik Yonetim (May 2020)
  • Cerved (Italy): Acquisition of 50.1% of Quaestio Cerved Credit Management (February 2020)

 

Trust administration M&A

  • Sanne (UK / Cayman Islands): Acquisition of Inbhear Fund Services and Inbhear Management Services (January 2020)
  • Intertrust (UK): Acquisition of Wells Fargo Trust Corporation (January 2020)
  • ZEDRA (Singapore): Acquisition of BNP Paribas Singapore Trust Corporation Limited (January 2020)

 

Direct lending M&A

  • Bridgepoint (Sweden): Acquisition of EQT Partners' credit business (June 2020)

 

High investor appetite

Deal highlight:

White & Case advised Catella Group, a Sweden-based specialist in property investments and fund management, on its sale of 70% of fund manager Catella Fondförvaltning to Athanase Industrial Partner

Financial sponsors (acquisitions):

  • Athanase Industrial Partner (Sweden): Acquisition of 70% of Catella Fondforvaltning (June 2020)
  • Nordic Capital (Sweden): Acquisition of Max Matthiessen (May 2020)
  • Bridgepoint (France): Acquisition of 20% of Cyrus Conseil (April 2020)
  • AnaCap (UK): Acquisition of Wealthtime (February 2020)
  • CBPE Capital (UK): Equity investment in Perspective Financial (January 2020)

Financial sponsors (WealthTech funding rounds):

  • Major Oak: Participation in £7 million Series A funding round for Smarterly (May 2020)
  • Fuel Ventures: Participation in £3 million Series A funding round for Capdesk (April 2020)
  • PMV: Participation in €2 million Seed funding round for InvestSuite (April 2020)

SWFs (WealthTech funding rounds):

  • GIC: Participation in US$107 million Series D funding round for Pagaya (June 2020)

Trade consolidators:

  • City of London Investment Group: Acquisition of Karpus Management (June 2020)
  • Natixis Investment Managers: Equity investment in Smart Pension (May 2020)

Foreign investors:

  • Pinnacle Investment Management (UK): Equity investment in Aikya Investment Management (May 2020)

Market appetite:

  • Ninety One (South Africa): £1.2 billion LSE and JSE IPO (March 2020)

Insurers:

  • Prudential (China): Asset management JV with CITIC Group (April 2020)

 

New markets / business lines

  • KBC (Belgium): Launch of everyoneINVESTED (April 2020)
  • Vanguard (UK): Launch of UK investment advisory services (January 2020)

 

Digitalisation marches on

Established players believe in WealthTech:

  • Refinitiv: Acquisition of Scivantage (March 2020)
  • Deutsche Bank: Equity investment in Qplix (March 2020)
  • Credit Suisse Asset Management: Acquisition of NorthPoint Technology (February 2020)
  • FNZ: Acquisition of Irish Progressive Services International (February 2020)
  • DWS Group: Acquisition of 24.9% of Arabesque AI (January 2020)

Established players partner with WealthTech:

  • FNZ: Blockchain-enabled administration utility JV with FinSwitch (May 2020)
  • Hauck & Aufhäuser: Wealth management partnership with Raisin (April 2020)
  • Deutsche Bank: Extension of wealth management alliance with Avaloq (April 2020)

Innovation consortia:

  • Clearstream, Credit Suisse Asset Management, Luxembourg Stock Exchange and Natixis Investment Managers: Collaboration on DLT-based platform for investment funds FundsDLT (March 2020)

Start-up support:

  • Fidelity: Launch of Silicon Roundabout digital hub (January 2020)

Inorganic growth by WealthTech:

  • Finantix: Acquisition of InCube (March 2020)

 

Click here to download Financial services M&A experiences shortness of breath in H1 2020 (PDF)

 

 

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© 2020 White & Case LLP

 

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