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Financial institutions M&A: Sector trends - January 2021

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January 2021

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

Introduction

2020 was a year of unprecedented peaks and troughs for European financial services M&A—a year with glittering prospects hit rock bottom in April, following the onset of the first COVID-19 lockdown. Bumper trading revenues and advisory fees recorded by the Bulge Bracket bolstered market confidence, but dividend bans and fears surrounding loan default levels soon took their toll.

Just when all seemed lost, deal-making rebounded strongly, hastening the commencement of bank consolidation M&A across Europe and the promise of an M&A bull market in 2021.

In this edition, we navigate the choppy financial services M&A landscape of 2020 to bring you key deal highlights and 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 H1 2021 and beyond.

Key highlights from H2 2020 include the following:

  • Banks: Mega domestic bank consolidation takes centre stage—Spain leads the charge by way of the CaixaBank / Bankia and Unicaja Banco / Liberbank all-share mergers
  • Fintech: Financial sponsors demand more bang-for-buck, as equity valuation volatility wreaks havoc for funding rounds
  • Asset / Wealth Management: Market consolidation continues at pace, as the COVID-19 pandemic heaps pressure onto smaller managers
  • Payments: Pan-European champions emerge amidst COVID-19 turmoil—Germany (Giropay / Paydirekt), France (Worldline / Ingenico) and Italy (SIA / Nexi)
  • Stock Exchanges / Clearing Houses / Trading Venues: Market infrastructure juggernauts thunder the M&A plains—vertical integration remains a key focus
  • Brokers / Corporate Finance: "Traditional" brokers resort to M&A to survive in the COVID-19 climate, which has materially boosted customer demand for DIY trading platforms
  • Consumer Finance: Financial sponsors back niche providers—child-friendly, gig-economy and POS finance attract interest in H2 2020
  • Specialty Finance / Marketplace Lending: Specialty finance businesses abandon retail investor roots in favour of institutional support

M&A Forecast legend

European financial services M&A trends

Mega domestic bank consolidation takes centre stage— Spain leads the charge

Bank M&A across Europe comes to a boil—the COVID-19 pandemic has hastened the confluence of conducive conditions for mega domestic mergers. Spain and the Balkans lead the charge, with Italy, Germany, France, Poland and the UK expected to follow.

vault

Europe's unicorns lengthen their stride amidst COVID-19 uncertainty—the bold set their sights on IPO in 2021

2020 has been a turbulent year for many fintechs. Established fintechs and startups with deliverable business plans have thrived, while others have suffered the indignity of plummeting valuations and down rounds.

office building statue

Asset/Wealth Management

Market consolidation continues at pace, as the COVID-19 pandemic heaps pressure onto smaller managers

gold coins

Payments

Pan-European champions emerge amidst the COVID-19 turmoil— Germany (Giropay/Paydirekt), France (Worldline/Ingenico) and Italy (SIA/Nexi)

Classical architecture

Stock Exchanges/Clearing Houses/Trading Venues

Market infrastructure juggernauts thunder the M&A plains—vertical integration remains a key focus

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Brokers/Corporate Finance

"Traditional" brokers resort to M&A to survive in the COVID-19 climate, which has boosted customer demand for DIY online trading platforms

stock market graph

Consumer Finance

Financial sponsors back niche providers—child-friendly, gig economy and POS finance attract interest in H2 2020

stock market display

Specialty Finance/Marketplace Lending

Specialty finance businesses abandon retail investor roots in favour of institutional support

computer circuit
assessment graph

Stock Exchanges/Clearing Houses/Trading Venues

Financial institutions M&A sector trends: stock exchanges/clearing houses/trading venues — H2 2020 and outlook for 2021

Insight
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3 min read

Market infrastructure juggernauts thunder the M&A plains—vertical integration remains a key focus

 

Overview

Current market

  • High M&A activity levels

We are seeing

  • European juggernauts thunder the M&A plains—differing prerogatives:
    • Horizontal growth (e.g., Euronext's acquisition of Borsa Italiana, WSE's acquisition of controlling stake in AMX, etc.)
    • Vertical integration (e.g., Deutsche Börse's acquisition of majority equity interest in Institutional Shareholder Services)
    • Transatlantic reach (e.g., Deutsche Börse's acquisition of majority equity interest in Quantitative Brokers)
    • New world securities (e.g., SIX's acquisition of majority equity interest in Custodigit)
  • Cashing out of 'liquid' investments:
    • Sovereign wealth funds (e.g., Türkiye Varlık Fonu's disposal of 10% of Borsa İstanbul)
    • Asset managers (e.g., First Investment Co.'s disposal of 14.407% of Boursa Kuwait

Key drivers/challenges

  • Regulators and politicians intervene in deal-making:
    • Competition authorities make a stand against market foreclosure risks (e.g., LSE's disposal of Borsa Italiana)
    • Central banks encourage diversification of ownership of critical market utilities
    • Local governments reserve ownership of domestic core infrastructure businesses (e.g., Italian government's extension of CONSOB's veto powers in respect of direct/indirect sales/ purchases of ≥10% stakes in Borsa Italiana)
  • Key utility players:
    • Engage in opportunistic M&A (e.g., availability of Borsa Italiana on account of LSE’s desire to secure EU antitrust approval for acquisition of Refinitiv)
    • Focus M&A firepower on verticals less likely to attract antitrust scrutiny (e.g., trade reporting, proxy advisory, digital asset custody, etc.)

Trends to watch

  • Banks seeking to offload 'liquid' financial market infrastructure stakes as the risk of the COVID-19 pandemic precipitating a credit crunch intensifies
  • Financial sponsors openly taking issue with interventionist approach of local European governments
  • UK seeking to encourage London listings by businesses of all sizes, post-expiry of Brexit transition period (i.e., revival of AQSE market aimed at micro-cap companies)

 

Our M&A forecast

Competition for prized financial utilities to remain high despite the longer-than-originally-anticipated effects of the COVID-19 pandemic (e.g., Deutsche Börse, Cassa Depositi e Prestiti and Intesa Sanpaolo's rumoured competing bids for Borsa Italiana).

 

Other financial services—Publicly reported deals & situations

Inorganic growth

Deal highlight:

White & Case represented the Qatar Investment Authority, the sovereign wealth fund of the State of Qatar, on its US$200 million acquisition of a 10% stake in Borsa İstanbul, the primary stock exchange operator in Turkey, from the Turkey Wealth Fund, the sovereign wealth fund of the Republic of Turkey.

  • Moscow Exchange (Kazakhstan): Acquisition of 13.1% of Kazakhstan Stock Exchange (December 2020)
  • Euronext (Italy): Acquisition of Borsa Italiana (October 2020)
  • Cboe Global Markets (Clearing): Acquisition of European Central Counterparty (July 2020)
  • SGX (Cloud-based institutional trading platform): Acquisition of remaining 80% of BidFX (June 2020)

 

Swapping horizontal for vertical reach

  • SIX (Switzerland): Acquisition of majority equity interest in Custodigit (December 2020)
  • MarketAxess (Germany): Acquisition of Deutsche Börse's Regulatory Reporting Hub (December 2020)

 

International expansion

  • Deutsche Börse (Proxy advisory): Acquisition of 80% of Institutional Shareholder Services (November 2020)
  • Warsaw Stock Exchange (Armenia): Acquisition of 65% of Armenia Securities Exchange (September 2020)
  • Deutsche Börse (US): Acquisition of majority stake of Quantitative Brokers (September 2020)

 

Offloading of 'liquid' stakes

  • Turkey Wealth Fund: Disposal of 10% of Borsa İstanbul (December 2020)
  • Deutsche Börse: Disposal of Regulatory Reporting Hub (December 2020)
  • London Stock Exchange (Italy): Disposal of Borsa Italiana (October 2020)
  • First Investment Co.: Disposal of 14.407% of Boursa Kuwait (July 2020)

 

Click here to download 'Financial services M&A stages a herculean comeback in H2 2020, finishing the year on a high' PDF.

 

 

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2021 White & Case LLP

 

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