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Financial institutions M&A: Sector trends - February 2020

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February 2020

We highlight the key European M&A trends in the second half of 2019, and provide our insights into the outlook for M&A moving forward

Introduction

As the relationship between the bloc and the United Kingdom transitions into a new era, financial services M&A across the European landscape responds to the weight of change. Change heralds opportunity for some and disruption for others.

To bring you this 6th edition of our biannual European Financial Services M&A Trends reports, we have analysed more than 1,600 deal and situations announced in H2 2019, including many that White & Case has directly advised on.

In this edition, we analyse inorganic investment strategies and highlight the key M&A trends across Europe and the UK. Focusing on Banks, Fintech and Other Financial Services, we also provide Focusing on Banks, Fintech and Other Financial Services, we also provide our insights on the outlook for M&A in H1 2020 and beyond.

Key highlights from H2 2019 include the following:

  • Banks: Strategic M&A takes centre stage—we have seen 40 bank consolidation deals in H2 2019
  • Fintech: Availability of growth capital drives stratospheric investment levels, with London overtaking New York as the world’s #1 hub for fintech investments
  • Asset/Wealth Management: Industry consolidation continues at pace, spurred by MiFID II fee transparency requirements, rising operating costs and growing competition
  • Payments: Mega-deals, including Global Payments/Total System Services, Fidelity National/Worldpay and PayPal/iZettle, dominate headlines
  • Stock Exchanges/Clearing Houses/Trading Venues: The search for the world’s premier listing venue continues—data aggregation and analytics capabilities could set competitors apart?
  • Brokers/Corporate Finance: Household names turn to M&A as pressure mounts from fintechs offering commission-free trading services
  • Consumer Finance: Financial sponsors see opportunities to back new entrants targeting under-serviced customer segments, including gig economy workers and solopreneurs
  • Specialty Finance/Marketplace Lending: The UK Financial Conduct Authority’s new P2P rules add to pressures faced by UK platforms

fig m&a introduction

European financial services M&A trends

Re-shaping for the new decade

Entry into the new decade brings promise—banks finally have the tools to shake off the remaining shackles of the global financial crisis and embrace deal-making to re-shape for the future.

bank vault door

Unicorns trail-blaze the London financial services landscape

British thoroughbreds dominate the downs—London has overtaken New York as the world's #1 hub for fintech investments. Unicorns are not mythical creatures on City streets…

circuit board

Asset/Wealth Management

Industry consolidation continues at pace. Rigorous fee transparency requirements under MiFID II, rising operating costs and growing competition from WealthTech/robo-advisers are forcing managers to combine.

credit cards

Payments

Megadeals, including Global Payments/Total System Services, Fidelity National/Worldpay and PayPal/iZettle, have dominated headlines, but both deal values and volumes keep smiles on deal-makers' faces.

banknotes

Stock Exchanges/Clearing Houses/ Trading Venues

The search for the world's premier listing venue continues—could data aggregation and analytics set competitors apart?

safety deposit boxes

Brokers/Corporate Finance

Household names turn to M&A as market disruption from fintechs offering commission-free trading continues.

circuit board

Consumer Finance

Financial sponsors see opportunities to back new entrants targeting under-serviced customer segments, including gig economy workers and solopreneurs.

stock market display

Specialty Finance/Marketplace Lending

The UK Financial Conduct Authority's new P2P rules add to pressures faced by UK platforms.

Financial Institutions M&A: Sector trends - June 2019
Financial Institutions M&A: Sector trends - June 2019

Specialty Finance/Marketplace Lending

Financial institutions M&A sector trends: specialty finance/marketplace lending — H2 2019 and outlook for 2020

Insight
|
4 min read

The UK Financial Conduct Authority's new P2P rules add to pressures faced by UK platforms.

 

Overview

Current market

  • Flat; marginal uptick

We are seeing

  • Funding rounds:
    • By established as well as new market participants
    • In the form of equity as well as debt
    • Backed by financial sponsors as well as established banks
  • Established market participants scaling up, particularly through bolt-on acquisitions and partnerships
  • Collapse of weaker business models—FundingSecure, Lendy and Collateral all went bust in 2019

Key drivers/challenges

  • Diverse spectrum of investors:
    • Trade consolidators—seeking market share (e.g., Goldmoney acquisition of Lend & Borrow Trust) and embracing digitalisation (e.g., Morses Club's acquisition of U Holdings)
    • Banks—lower cost of capital associated with debt investments (e.g., National Australia Bank's £200 million debt investment in LendInvest)
    • Financial sponsors—opportunity to secure earlybird stakes in new entrants targeting under-serviced markets (e.g., revenue-based financing/royalty-based financing)
  • Pressure from the UK Financial Conduct Authority's new P2P rules, which restrict access to sophisticated, high-net-worth individuals or those who commit to limiting their investing to 10% of assets

Trends to watch

  • Differing regulatory prerogatives:
    • Consumers—protecting ‘vulnerable' retail investors
    • Ensuring alternative finance providers thrive and service market needs

Our M&A forecast

Growing support for alternative finance providers able to proffer financial inclusion for underserviced entrepreneurs and SMEs, particularly in emerging markets where bank credit is less readily accessible.

 

Publicly reported deals & situations

Scaling up

Marketplace lending is expected to top £6 billion in 2019 (AltFi–November 2019)

Equity/debt investments:

  • Zopa: Successful £140 million Series H funding round, led by IAG Capital (December 2019)
  • Duke Royalty: Successful £20 million open offer, retail offer and further direct subscriptions (October 2019)
  • CrossLend: Successful €35 million Series B funding round, led by Santander InnoVentures (October 2019)
  • LendInvest: £200 million debt investment from National Australia Bank (August 2019)

Acquisitions:

  • Goldmoney: Acquisition of Lend & Borrow Trust (August 2019)
  • Morses Club: Acquisition of U Holdings (June 2019)

Alliances:

  • Fellow Finance: Consumer loans JV with Citadeal Bank (November 2019)
  • Funding Circle: German and Dutch SMEs lending JV with Avida Finans (June 2019)

 

New entrants

  • ID Finance: Successful £4.4 million crowdfunding round (November 2019)
  • Become: Successful US$12.5 Series A funding round, led by Magenta Venture Partners (November 2019)

 

Growing pressure on P2Ps

  • ThinCats: Closure of its P2P platform (December 2019)
  • FundingSecure: 
    Collapse into administration
    (October 2019)

 

Click here to download 'Financial services M&A finished strong in 2019 ' PDF

 

 

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2020 White & Case LLP

 

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