Bank M&A bounces back
Banks have emerged from the global financial crisis with a clearer picture of how they need to be structured. Strategic M&A is back as banks across Europe consolidate and lean in to the fintech revolution.
In 2017, the European economy expanded by 2.5 per cent, its strongest performance since before the global financial crisis. However, economic growth has done little to ease mounting stakeholder pressure on the bloc’s financial institutions. Persistently low interest rates, increasing regulatory burden, competition from fintechs, unavoidable IT cost hikes and elevated consumer expectations are only some of the factors which have led to declining revenues for many of the region’s largest and most well-established financial services businesses.
The call of the global financial elite in Davos for consolidation across Europe’s financial services industry was somewhat inevitable.
In this series of individual reports, each focusing on one main financial services subsector, being Banks, State-aided banks, Fintech, Asset/wealth management, Market infrastructure and UK consumer finance, we analyse the industry’s response to that call.
We highlight the key European M&A trends in the first half of 2018, and provide our insights into the outlook for M&A moving forward.
European financial services
M&A trends
Banks have emerged from the global financial crisis with a clearer picture of how they need to be structured. Strategic M&A is back as banks across Europe consolidate and lean in to the fintech revolution.
State-aided banks are a fertile source of deal flow. Institutions continue to deleverage balance sheets and dispose of non-core businesses, while governments seek privatisation. But make no mistake — deals are hard fought, with risk allocation needing to be carefully managed at every turn.
By Guy Potel
Fintech M&A volumes and values soared in H1 2018 as banks embraced fintech as a key enabler of operational efficiency and customer satisfaction. Private equity and venture capital houses continued to invest aggressively in the space, buoyed by a series of strong exits and growing buyer demand.
By Gavin Weir
New regulation, competition from fintech disruptors and ever-more sophisticated and demanding retail investors (wanting more for less) have forced asset/wealth managers to build scale through mergers of equals, acquisition of smaller players and buy-in of technology. The global financial crisis is behind them, but the new challenges are no less daunting.
M&A in payment services is red hot, but anti-trust concerns in the trading platform space and dominant incumbents in the custodian sub-sector has meant deal activity as a whole has been uneven.
By Ashley Ballard and Hyder Jumabhoy
Regulation has put the brakes on deal activity involving credit card providers and payday lenders, but specialty and marketplace lenders are continuing to attract large amounts of strategic and private equity interest.
What's hot and what's not across the European financial services landscape
White & Case partner Patrick Sarch talks about some of the trends that will shape M&A activity across European financial services.
Pressure mounts on States to recoup public funds
White & Case partner Richard Pogrel talks about the key themes within the state-aided banks sector and what is driving activity within the sector.
Consolidation activity intensifies with possible mega-mergers on the horizon
White & Case partner Gavin Weir shares his predictions for the asset/wealth management sector over the next 12-18 months and discusses what has been driving consolidation within the sector.
Responsiveness makes all the difference
White & Case partner John Reynolds talks about the principle areas of focus for the FCA and the recent change to how they approach investigations.
Market infrastructure — a mixed bag for dealmakers
The whirlwind of payments M&A gathers force. The perfect storm of growing customer demand, regulation-encouraged competition and mega-returns has got buyers and sellers transacting at record pace.
M&A in payment services is red hot, but anti-trust concerns in the trading platform space and dominant incumbents in the custodian sub-sector has meant deal activity as a whole has been uneven.
Deal activity intensifies. Financial sponsor activity, growing buyer appetite and market consolidation drive M&A.
Financial sponsor investments and exits are likely to support high levels of deal activity. Larger market participants also turn to M&A as they move to build scale in response to increasing competition and customer demand.
Upward, very high activity levels
Efficiency the motivator, as operators seek scale. Prolonged low trading volatility sees trading platforms turn to M&A in response to shareholder pressure for improved profitability.
Shareholder pressure to increase profits may force operators to seek out economies of scale and scope, making inorganic expansion a priority. However, antitrust concerns may mean that M&A activity is centred on regional consolidation and vertical integration.
Upward
Outsourcing and digital offer options, but incumbents remain cautious.
As cryptocurrency markets mature, custodians may look to expand into digital asset services. Deals like BitGo's purchase of US-based digital custodian Kingdom Trust may spark similar transactions in Europe.
Global players enjoy dominant positions and are under no immediate pressure to chase deals.
Flat
Payments M&A is expected to increase materially in 2018.*
Deal highlight
Spectacular exits continue. Hellman & Friedman completed its acquisition of Nets for more than US$5 billion, to merge the Danish player with Advent's and Bain's Concardis only a few months later. The deal forges a behemoth to compete with the likes of Worldpay, Inc.
ICOs reach new heights, including Block.one's US$4bn ICO (May 2018).
Cryptocurrencies hit an aggregate value of US$800bn in January and slumped to US$260bn by April.**
Deal highlight
Ingenico has continued to be an active trade consolidator in 2018. The fast-growing global payments player also acquired Bambora from Nordic Capital in 2017.***
Deal highlight
ClearBank is the first UK "challenger" clearing bank in nearly 200 years and the brainchild of Worldpay founder, Nick Ogden.***
Click here to download PDF of this chapter.
* Source: Goldman Sachs Equity Research (January 2018).
** Source: Reuters (April 2018).
*** White & Case LLP acted on this transaction.
This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2018 White & Case LLP