The road to recovery from the global financial crisis has been complex and challenging for financial institutions across Europe, with many still having some way yet to go
In 2017, the European financial services sector has weathered monumental political uncertainty as events in Spain challenge its constitution and financial ecosystem, Italy attempts to scale its €349 billion debt mountain and the UK's vote to leave the EU "becomes real". The uncertainty has been compounded by the shifting sands of financial regulation and the unprecedented eruption of new financial technology which promises to revolutionise, but also threatens to disrupt, the business models of even the most sophisticated and well-capitalised businesses.
Whilst the path ahead perhaps remains a daunting prospect for some, one thing is clear—successful implementation of inorganic business transformation strategies is a key solution for remaining competitive and winning market share.
With this in mind, in this report we analyse the key European M&A trends in 2017 spanning the main financial services subsectors, and offer insight into the 2018 outlook for M&A in each:
European financial services
M&A trends
Banks, on the back foot following the financial crisis, are finally making a calculated comeback to M&A as they start to focus on core geographies and business lines. With balance sheets strengthened and capital reserves being rebuilt, global banks are now better placed to focus on markets and product offerings they believe will deliver the most growth in 2018.
While rating agencies are beginning to show first signs of positive sentiment towards European banks, the shifting regulatory landscape continues to complicate M&A processes, making it challenging to find committed buyers. Against this backdrop, high levels of financial sponsor interest in stressed and distressed assets are a welcome source of new capital. Recovery is certainly possible, but not without significant uncertainty.
By Guy Potel
Established financial institutions are engaging with fintech as never before and are now active participants in fintech M&A. Private equity and venture capital appetite for transactions remains strong. Fintech dealmaking is booming as a consequence, and there is every indication that this will continue for some time yet.
By Gavin Weir
Megadeals in the asset management industry have been coming thick and fast: Standard Life's £3.8 billion tie-up with Aberdeen Asset Management, Amundi's €3.55 billion acquisition of Pioneer and Henderson and Janus Capital joining forces, to name but a few. Activity is likely to continue as MiFID II comes into force.
By James Greig
Technology and tougher regulation are reshaping the infrastructure the financial services industry relies on to function. The four pillars of financial market infrastructure: payment systems; trading platforms; financial benchmarks; and custodians are all unique in the trends that are influencing their M&A activity.
Dealmaking across the UK consumer credit landscape varies materially. While deal volume in the specialty finance and market place lending space continues to remain high, by contrast, M&A activity in the payday lending space is reserved for the few players who have weathered the Financial Conduct Authority’s interest rate caps and enforcement actions.
White & Case partner Patrick Sarch talks about some of the trends that will shape M&A activity across European financial services in 2018.
White & Case partner Guy Potel discusses why financial institutions are engaging with fintech as never before.
Acquire or be acquired: Three reasons why asset managers are consolidating
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Consolidation is likely to continue apace, but there is no M&A "magic wand": The right business pairing, efficient execution and post‑deal integration are key
Megadeals in the asset management industry have been coming thick and fast: Standard Life's £3.8 billion tie-up with Aberdeen Asset Management, Amundi's €3.55 billion acquisition of Pioneer and Henderson and Janus Capital joining forces, to name but a few. Activity is likely to continue as MiFID II comes into force.
Exponential growth in consolidation at all levels underpinned by regulatory change.
1. Keeping up with compliance
Asset managers have faced a wave of regulatory change since the financial crisis. MiFID II and GDPR are arriving imminently and will materially increase the volume of regulation asset managers need to manage. Firms that fail to do so run the risk of huge fines.
The Financial Conduct Authority, meanwhile, following a review of the industry, has clamped down on commission-based fee structures and the charging of dealing commissions for research. This has squeezed fee revenue further.
Ultimately, what this means is that more resources are needed to ensure and demonstrate compliance. M&A has been an obvious strategy for achieving synergies and attempting to benefit from economies of scope and scale.
2. Expanding strategy, geography and appetite in alternative assets
Customers are becoming more demanding and are no longer satisfied with single-strategy products restricted to a handful of geographies.
They want access to developed and emerging markets and there is appetite for exposure to alternative assets like real estate, infrastructure and private equity in addition to traditional bonds and equities. Schroders has backed alternatives specialist Adveq, and M&G has expanded in Europe.
More deal activity is anticipated as asset managers actively seek to build themselves into "one-stop shops", offering investors exposure to a variety of strategies across a wider range of geographies.
3. Rise of the robots
'Robo-advisers' have disrupted the asset management model, providing cheap, diversified portfolios based on client risk profiles that can be managed online. They have been especially popular with younger investors. Traditional managers are having to move fast to keep up.
Steep upward trajectory in M&A activity at all market levels, in line with growing international buyer interest. A significant number of notable market players have already started to implement their consolidation strategies.
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© 2017 White & Case LLP
