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Financial Institutions M&A: Sector trends - June 2019

What's inside

June 2019

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

Introduction

As global fintech funding in Q1 2019 approaches US$6.3 billion, London is poised to rival San Francisco as stable to the highest number of unicorns.

Established European financial institutions have joined the fintech race, hoping to harness the promise of technology—a smooth, tailored and safe consumer experience, available everywhere and to everyone. However, innovation is expensive, absorbing valuable resources at a time of unresolved trade concerns, fragmented markets, political uncertainty and unknown Brexit impact.

Do fintechs justify such high valuation multiples? Can fintechs really deliver the seemingly endless possibilities? Would resources be better allocated elsewhere?

In this series of biannual reports, we analyse inorganic investment strategies and highlight the key M&A trends across Europe and the UK in H1 2019. Focusing on banks, fintech, and other financial services (i.e., asset/wealth management, market infrastructure, consumer finance and Specialty finance), we also provide our insights into the outlook for H2 2019 and beyond.

fig m&a introduction

European financial services
M&A trends

Consolidation continues at pace—mega-mergers on the horizon

The wait is over. Whispers of mega-deals have matured into agenda items for boards of many larger European banks.

Financial Institutions M&A: Sector trends - June 2019

Stampede of the unicorns

H1 2019 has seen European fintech M&A hit new heights. Fintechs have enjoyed funding support from established financial institutions, financial sponsors, sovereign wealth funds, data giants and family offices. The next 36 months will be pivotal in identifying fintechs which will revolutionise financial services

Financial Institutions M&A: Sector trends - June 2019

Asset/Wealth Management

Fallout from MiFID II continues to drive industry consolidation. In the last 6 months, there has been a glut of smaller deals, but a dearth of megamergers

gold coins

Payments

Rapid rise of mobile commerce, e-commerce, growing merchant/ consumer familiarity with non-bank providers and accessibility by under-banked communities are all driving demand for electronic payments. It is no surprise that M&A levels have reached stratospheric heights, and show little sign of descending

banknotes

Stock exchanges/Clearing houses

Seeking multijurisdictional scale, as concerns around long-term viability of the independent stock exchange operational model continue to grow

round vault door

Brokers/Trading service providers

Market consolidation continues. MiFID II, sluggish capital markets, increasing operational overheads and over-brokered European financial centres drives M&A

stock market display

Credit cards/Consumer finance

Financial sponsors provide dry powder to new entrants seeking to disrupt existing card providers, 'level-up' in-store consumer finance solutions/experience and fill the void left by payday lenders

Financial Institutions M&A: Sector trends - June 2019

Specialty Finance/Marketplace lending

Trade consolidators dominate the M&A charts, seeking scale, vertical integration and opportunities to conquer their own niches

bank vault door

Stock exchanges/Clearing houses

Financial institutions M&A sector trends: stock exchanges/clearing houses — H1 2019 and outlook for H2 2019

Insight
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4 min read

Current market

  • Upward

We are seeing

  • Inorganic expansion by larger exchanges:
    • Horizontally (e.g., Euronext's acquisition of control of Oslo Børs and ATHEX's equity investment in Kuwait Stock Exchange)
    • Vertically (e.g., LSE's acquisition of additional 4.9% of Euroclear and securing of board representation)
  • Deployment of investment capital resources towards fintech (in particular, data analytics)

Key drivers

  • Building multijurisdictional scale:
    • Within Europe (e.g., Euronext operates exchanges in Paris, Lisbon, Amsterdam, Brussels and Oslo)
    • Europe outbound (e.g., Athens Stock Exchange's consortium acquisition of 44% of Kuwait Stock Exchange)
    • US inbound (e.g., Nasdaq operates exchanges in Copenhagen, Stockholm, Helsinki, Tallinn, Riga and Vilnius)
  • Concerns around non-viability of the independent stock exchange operation model in the long term
  • Bolt-on acquisitions:
    • Investment in trade efficiency technology
    • Diversification into information and post-trade services
  • Nationalistic attitudes and perceived market foreclosure apprehensions continuing to mar transactional deals

Trends to watch

  • Larger exchanges seeking scale. However, mergers between core European exchanges are unlikely, and antitrust concerns will need careful navigation (e.g., divestment commitments)
  • Investors in larger exchange operators seeking to cash out
  • Possibility of smaller deals in the foreign exchange and commodities space

Our M&A forecast

M&A to achieve scale is still high on agendas of the boards of core European exchanges. However, the aborted LSE/ Deutsche Börse merger highlights the political, antitrust and regulatory challenges for an EU merger-between-equals.

 

Other financial services—Publicly reported deals & situations

 

Inorganic growth

Acquisitions:

  • Deutsche Börse: Acquisition of Axioma (April 2019)
  • London Stock Exchange: Acquisition of 4.9% of Euroclear (January 2019)

Horizontal cooperation:

  • MarketAxess: ETF JV with Virtu (April 2019)

Vertical cooperation:

  • SIX: Global sanctions data JV with Eagle Investment Systems (April 2019)

 

International expansion

Out-bound:

  • Euronext: Acquisition of majority control of Oslo Børs (May 2019)
  • Nasdaq: Acquisition of 37% of Oslo Børs (April 2019)
  • Athens Stock Exchange: Consortium acquisition of 44% of Kuwait Stock Exchange (February 2019)

In-bound:

  • Singapore Exchange: Acquisition of 20% of BidFX (March 2019)

 

Digital world demands– outsourcings and bolt-ons

  • London Stock Exchange: Acquisition of Beyond Ratings (June 2019)
  • Liquidnet: Acquisition of RSRCHXchange (May 2019)
  • Deutsche Börse: Multi-year cloud services contract with Microsoft Azure (May 2019)
  • Nasdaq Technology: Acquisition of Cinnober Financial Technology (January 2019)
  • IHS Markit: Minority equity investment in Digital world Cobalt (January 2019)

 

Regulatory intervention

  • European Central Bank: Strong criticism of new proposed ESMA powers for boosting supervision of clearing houses (March 2019)
  • European Securities and Markets Authority: Proposed new powers to monitor clearing houses' risk management and to determine whether non-EU institutions should move to the EU (March 2019)

Brexit contingency planning

  • Aquis Exchange: French Prudential Supervision and Resolution Authority approval for new Paris hub (January 2019)

 

 

 

 

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2019 White & Case LLP

 

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