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Financial institutions M&A: Sector trends - July 2020

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July 2020

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

Introduction

The COVID-19 pandemic has ravaged the European financial services sector, sending shockwaves across the FIG M&A landscape. It is no surprise that M&A volumes have plummeted. Yo-yoing valuations, buyer conservatism and the promise of "cheaper" stressed / distressed opportunities have compounded a cavernous rift between seller and buyer expectations. Reality is slowly sinking in—as the possibility of a v-shaped economic recovery becomes increasingly bleak, concern is growing around whether IFRS 9 loss estimation is much more than educated guesswork.

But all is not lost. The resilience of established financial institutions, fortified in the decade since the global financial crisis, agility afforded by digitalisation and evolution of customer interaction with financial services have contributed to M&A hotspots which burn bright amidst market gloom.

In this edition, we hone in on those hotspots and highlight the key 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 H2 2020 and beyond.

Key highlights from H2 2019 include the following:

  • Banks: Surge in strategic M&A, post-easing of lockdowns, as pent-up deal-making prowess is unleashed.
  • Fintech: Financial sponsors demand more bang for buck, as equity valuation volatility wreaks havoc for funding rounds.
  • Asset/Wealth Management: Differing bank prerogatives drives deal-making— some European banks tag-out from non-core business lines, while others tag-in for stable returns.
  • Payments: Lockdown utilisation levels encourage cross-border operators to scale-up and private equity investors to pile-in.
  • Stock Exchanges/Clearing Houses/Trading Venues: Clash of the pan-European titans—M&A plans signalled by LSE, Euronext and Deutsche Börse.
  • Brokers/Corporate Finance: Thinning of the herd continues as "traditional" brokers struggle to remain profitable amidst encroachment by Bulge Bracket and disruption by fintech.
  • Consumer Finance: A time of temperance as COVID-19 covenant breach forbearance, payment holiday and repossession deferral relief measures take their toll.
  • Specialty Finance/Marketplace Lending: Panacea or plague—what will the true impact of accreditation for government-backed loan schemes be?

M&A Forecast legend

European financial services M&A trends

Europe's post-GFC leaner and better-capitalised banks are put to the test by the COVID-19 pandemic

Banks with stronger balance sheets capitalise on M&A opportunities amidst COVID-19 market turmoil, while their weaker peers consolidate to survive.

vault

As the technicolour gloss of unicorns fade, investors attempt to back the right horses

H1 2020 heralds an entirely new era for fintech, a market segment which scarcely existed at the time of the global financial crisis. Many founders and investors, who have enjoyed a bull run since 2015, have had their first taste of the bear markets which banks endured in the years following 2008.

Buckingham Palace gate details

Asset/Wealth Management

Differing bank prerogatives drive deal-making—-some European banks tag-out from non-core business lines, while others tag-in for stable returns.

stock market display

Payments

Lockdown utilisation levels encourage cross-border operators to scale-up and private equity investors to pile-in.

banknotes

Stock Exchanges/Clearing Houses/ Trading Venues

Clash of the pan-European titans—-M&A plans signalled by LSE, Euronext and Deutsche Börse.

bank

Brokers/Corporate Finance

Thinning of the herd continues as "traditional" brokers struggle to remain profitable amidst encroachment by Bulge Bracket and disruption by fintech.

stock display

Consumer Finance

A time of temperance as COVID-19 covenant breach forbearance, payment holiday and repossession deferral relief measures take their toll.

credit cards

Specialty Finance/Marketplace Lending

Panacea or plague—-what will the true impact of accreditation for government-backed COVID-19 loan schemes be?

stock market display
bank

Stock Exchanges/Clearing Houses/ Trading Venues

Financial Institutions M&A sector trends: Stock exchanges/clearing houses/trading venues — H1 2020 and outlook for H2 2020

Insight
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4 min read

Clash of the pan-European titans—-M&A plans signalled by LSE, Euronext and Deutsche Börse

 

Overview

Current market

  • Consistent; high activity levels

 We are seeing

  • European giants on the move:
    • Horizontal mergers (e.g., SIX's acquisition of 93.16% of BME followed less than 18 months after Euronext's acquisition of Oslo Børs)
    • Domestic consolidation (e.g., BÖAG Börsen's acquisition of a majority stake in ICF Bank)
    • Vertical integration with post-trade utilities (e.g., Euronext's acquisition of 70% of VP Securities)
    • Cross-border collaboration (e.g., SIX's and Nasdaq's microwave data transmission JV)
    • Disciplined implementation of innovation strategies, targeting risk management (e.g., Euronext's acquisition of Ticker Software and Sidonnaisuusrekisteri.fi) and data analytics (e.g., LSE's acquisition of Refinitiv)

Key drivers/challenges

  • European champions seek scale and volume:
    • Diversification of offerings (e.g., Moscow Exchange's acquisition of a minority stake in BierbaumPro)
    • MiFID II failed to shift more equities trading to stock exchanges
    • IPOs are temporarily shelved in the COVID-19 climate
    • Availability of bank-owned non-core financial market infrastructure assets (e.g., disposal of VP Securities by Danske Bank, Nykredit, Nordea and Jyske Bank)
  • Politics interferes with deal-making:
    • Nationalistic attitudes (e.g., Italian government threatened "direct public intervention" in Borsa Italiana in event of sale by LSE)
    • Preservation of domestic utilities (e.g., Türkiye Varlık Fonu's increase of its stake in Borsa İstanbul to 90.6%)
    • Global tensions (e.g., China temporarily halted cross-border listings collaboration between Shanghai Stock Exchange and LSE)

Trends to watch

  • Clash of the pan-European titans—aggressive M&A plans signalled by LSE, Euronext and Deutsche Börse
  • Banks offload "liquid" financial market infrastructure stakes

Our M&A forecast

M&A to achieve scale remains high notwithstanding the COVID-19 pandemic. Competition between market participants for the same high-value targets is likely to intensify (e.g., Deutsche Börse's and Euronext's rumoured interest in Borsa Italiana)

 

Publicly reported deals & situations

Inorganic growth

Market highlight:

SIX's successful acquisition of a controlling stake in BME will result in the combined group being the third-largest financial market infrastructure operator in Europe by revenue

  • SIX (Stock exchange): Acquisition of 93.16% of Bolsas y Mercados (June 2020)
  • BÖAG Börsen (Settlements): Acquisition of majority stake in ICF Bank (April 2020)
  • Euronext (Post-trade utility): Acquisition of 70% of VP Securities (April 2020)
  • Moscow Exchange (e-FX): Acquisition of minority stake in BierbaumPro (March 2020)

 

International expansion

  • IHS Markit (Singapore): Acquisition of Catena Technologies (May 2020)
  • SIX and Nasdaq (Switzerland): Microwave data transmission JV (April 2020)

 

The promise of returns

  • Consortium of Belgian: investors Acquisition of more than 5% of Euroclear (June 2020)
  • J.P. Morgan: Digital post-trade services streamlining JV with Bloomberg (June 2020)
  • Guru Capital: Acquisition of ETX Capital (May 2020)
  • Citibank and HSBC: Participation in US$10.5 million Series B funding round for Spark Systems (May 2020)
  • ALREG: Acquisition of 5% by Credins Bank (April 2020)
  • Borsa Istanbul: Acquisition of 10% by Turkish Wealth Fund (January 2020)

 

Risk management

  • Euronext (Insider list and liability register management): InsiderLog's acquisition of Ticker Software and Sidonnaisuusrekisteri.fi (June 2020)

 

Click here to download Financial services M&A experiences shortness of breath in H1 2020 (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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