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Financial institutions M&A: Sector trends - January 2021

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January 2021

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

Introduction

2020 was a year of unprecedented peaks and troughs for European financial services M&A—a year with glittering prospects hit rock bottom in April, following the onset of the first COVID-19 lockdown. Bumper trading revenues and advisory fees recorded by the Bulge Bracket bolstered market confidence, but dividend bans and fears surrounding loan default levels soon took their toll.

Just when all seemed lost, deal-making rebounded strongly, hastening the commencement of bank consolidation M&A across Europe and the promise of an M&A bull market in 2021.

In this edition, we navigate the choppy financial services M&A landscape of 2020 to bring you key deal highlights and 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 H1 2021 and beyond.

Key highlights from H2 2020 include the following:

  • Banks: Mega domestic bank consolidation takes centre stage—Spain leads the charge by way of the CaixaBank / Bankia and Unicaja Banco / Liberbank all-share mergers
  • Fintech: Financial sponsors demand more bang-for-buck, as equity valuation volatility wreaks havoc for funding rounds
  • Asset / Wealth Management: Market consolidation continues at pace, as the COVID-19 pandemic heaps pressure onto smaller managers
  • Payments: Pan-European champions emerge amidst COVID-19 turmoil—Germany (Giropay / Paydirekt), France (Worldline / Ingenico) and Italy (SIA / Nexi)
  • Stock Exchanges / Clearing Houses / Trading Venues: Market infrastructure juggernauts thunder the M&A plains—vertical integration remains a key focus
  • Brokers / Corporate Finance: "Traditional" brokers resort to M&A to survive in the COVID-19 climate, which has materially boosted customer demand for DIY trading platforms
  • Consumer Finance: Financial sponsors back niche providers—child-friendly, gig-economy and POS finance attract interest in H2 2020
  • Specialty Finance / Marketplace Lending: Specialty finance businesses abandon retail investor roots in favour of institutional support

M&A Forecast legend

European financial services M&A trends

Mega domestic bank consolidation takes centre stage— Spain leads the charge

Bank M&A across Europe comes to a boil—the COVID-19 pandemic has hastened the confluence of conducive conditions for mega domestic mergers. Spain and the Balkans lead the charge, with Italy, Germany, France, Poland and the UK expected to follow.

vault

Europe's unicorns lengthen their stride amidst COVID-19 uncertainty—the bold set their sights on IPO in 2021

2020 has been a turbulent year for many fintechs. Established fintechs and startups with deliverable business plans have thrived, while others have suffered the indignity of plummeting valuations and down rounds.

office building statue

Asset/Wealth Management

Market consolidation continues at pace, as the COVID-19 pandemic heaps pressure onto smaller managers

gold coins

Payments

Pan-European champions emerge amidst the COVID-19 turmoil— Germany (Giropay/Paydirekt), France (Worldline/Ingenico) and Italy (SIA/Nexi)

Classical architecture

Stock Exchanges/Clearing Houses/Trading Venues

Market infrastructure juggernauts thunder the M&A plains—vertical integration remains a key focus

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Brokers/Corporate Finance

"Traditional" brokers resort to M&A to survive in the COVID-19 climate, which has boosted customer demand for DIY online trading platforms

stock market graph

Consumer Finance

Financial sponsors back niche providers—child-friendly, gig economy and POS finance attract interest in H2 2020

stock market display

Specialty Finance/Marketplace Lending

Specialty finance businesses abandon retail investor roots in favour of institutional support

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stock market graph

Brokers/Corporate Finance

Financial institutions M&A sector trends: brokers/corporate finance — H2 2020 and outlook for 2021

Insight
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4 min read

"Traditional" brokers resort to M&A to survive in the COVID-19 climate, which has boosted customer demand for DIY online trading platforms

 

Overview

Current market

  • Moderate M&A activity levels

We are seeing

  • The COVID-19 pandemic driving customer demand for DIY/ online trading platforms (i.e., DriveWealth, M1 Finance, Groww, Morpher and Robinhood have all successfully raised growth capital in H2 2020)
  • Financial sponsors supporting digital disruptors
  • Brokers look to M&A to compete in the COVID-19 climate:
    • Gaining scale (e.g., Consultinvest/Sol&Fin merger, Citadel Securities' acquisition of IMC's designated market-making business, Interactive Investor's acquisition of Share, etc.)
    • Expanding geographical reach (e.g., OANDA's acquisition of TMS Brokers and EMZ Partners' acquisition of majority stake in ASSEPRO)
    • Amalgamating senior talent (e.g., Eaton Square acquisition of M&A Advisory)
    • Delivering electronification and efficiency (e.g., TP ICAP's acquisition of Liquidnet)
    • Encancing digital asset capability (e.g., INX's acquisition of Openfinance

Key drivers/challenges

  • Brokers under significant pressure to future-proof business models:
    • Scale to accommodate margin compression, whilst ensuring strategic fit and senior management shared values
    • Capital required for investment in automation as well as monitoring and reporting technology
    • Orientation of service delivery to enhance customer experience and achieve differentiation from competitors
  • Banks and other FIs seek:
    • Vertical integration (e.g., Deutsche Börse's acquisition of majority stake in Quantitative Brokers and MarketAxes's acquisition of Regulatory Reporting Hub)
    • Diversification into non-bank financial services (e.g., NI Capital's acquisition of Arabeya Online Brokerage and Banco BTG Pactual's acquisition of Necton Investimentos)
    • Opportunities to expand into China (e.g., Goldman Sach's acquisition of remaining stake in Goldman Sachs Gao Hua and J.P. Morgan's acquisition of remaining stake in J.P. Morgan Securities (China))

Trends to watch

  • Uptick in "acqui-hires"—transactions aimed at inorganic growth of sector expertise
  • China—the new frontier
  • Rise of the JV model (e.g., ABN AMRO's Benelux equity brokerage JV with ODDO BHF)
  • Digital asset specialists seeking 'traditional' broking capability (e.g., eToro's rumoured interest in acquiring an operating broker/dealer)

 

Our M&A forecast

Larger, more diverse and digitally enabled brokers to emerge in the next 18 to 24 months, offering brokerage services across a range of traditional and digital asset classes.

 

Other financial services—Publicly reported deals & situations

High investor appetite

Trade bulk-up:

  • Goldman Sachs (China): Acquisition of remaining stake in Goldman Sachs Gao Hua (December 2020)
  • J.P. Morgan (China): Acquisition of remaining stake in J.P. Morgan Securities (China) (November 2020)
  • NI Capital Holding (Egypt): Acquisition of Arabeya Online Brokerage (November 2020)
  • Eaton Square (UK): Acquisition of M&A Advisory (November 2020)
  • BTG Pactual (Brazil): Acquisition of Necton (October 2020)
  • Consultinvest & Sol&Fin (Italy): Merger (October 2020)
  • Citadel Securities (US): Acquisition of IMC's designated market-making business (October 2020)
  • TP ICAP (US): Acquisition of Liquidnet (October 2020)
  • Compagnie Financiere Tradition (New Zealand): Acquisition of OM Wholesale (September 2020)
  • OANDA (Poland): Acquisition of TMS Brokers (September 2020)

Trade diversification:

  • INX Limited (US): Acquisition of Openfinance Securities (October 2020)
  • MarketAxess (Germany): Acquisition of Regulatory Reporting Hub (September 2020)
  • Deutsche Börse (US): Acquisition of majority stake of Quantitative Brokers (September 2020)
  • Banque Misr (Egypt): Acquisition of further 9% of CI Capital (August 2020)

Private equity/Venture capital:

  • EMZ Partners (Switzerland): Acquisition of majority stake in ASSEPRO (November 2020)
  • Ribbit Capital (Online investing): Participation in US$21.4 million Series B funding round for Groww (September 2020)
  • Apex Ventures (Online trading): Participation in US$1.25 million Seed funding round for Morpher (August 2020)
  • D1 Capital Partners (Online trading): Participation in US$200 million Equity funding round for Robinhood (August 2020)

Market appetite:

  • Flexdeal: Successful €10 million capital increase via public subscription (August 2020)

 

Market consolidation to achieve economies of scale & scope

  • R.J. O'Brien & Associate (UAE): Acquisition of Lombard Forte Securities (August 2020)
  • K3 Capital Group (UK): Acquisition of Quantuma Advisory Limited (August 2020)
  • Freedom Holding Corp (Russia): Acquisition of Zerich Capital Management (July 2020)
  • Interactive Investor (UK): Acquisition of Share (July 2020)
  • Legae Peresec (South Africa): Acquisition of 49.9% of African Phoenix Investment (June 2020)

 

Mounting competition from digital providers

  • DriveWealth (Online trading): Successful US$56.7 million Series C funding round, led by Point72 Ventures (October 2020)
  • M1 Finance (Online trading): Successful US$45 million Series C funding round, led by Left Lane Capital (October 2020)
  • Groww (Online investing): Successful US$21.4 million Series B funding round, led by Ribbit Capital (September 2020)
  • Morpher (Online trading): Successful US$1.25 million Seed funding round, led by Apex Ventures (August 2020)
  • Robinhood (Online trading): Successful US$200 million Equity funding round, led by D1 Capital Partners (August 2020)

 

Click here to download 'Financial services M&A stages a herculean comeback in H2 2020, finishing the year on a high' PDF.

 

 

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2021 White & Case LLP

 

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