Financial institutions M&A: Market infrastructure | White & Case LLP International Law Firm, Global Law Practice
Financial institutions M&A: Market infrastructure

Financial institutions M&A: Market infrastructure

Regulatory change continues to be a key driver of M&A activity

Table of contents

Payment systems / e-money providers

Trading platforms

Financial benchmarks

Custodians

    

Payment systems / e-money providers

Current market

  • Upward

We are seeing

  • Strategic M&A deals and financial sponsor interest

Key drivers

  • Market participants are forced to scale up to meet reduced profitability resulting from new regulations
  • Increasing operating costs resulting from additional regulatory burden and increasing litigation risk in connection with multilateral interchange fees
  • Competition from a growing range of alternative services and innovators

Trends to watch

  • Private equity interest in payment service providers

Our M&A forecast

Relatively steady M&A levels. Main motivation is likely to include competition with established market participants, compounded by disruption by innovators

   
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Trading platforms

Current market

  • Upward, high levels of activity

We are seeing

  • Strategic M&A deals

Key drivers

  • Market consolidation globally and regionally, but some signs of platforms concentrating efforts within 'home continent' markets

Trends to watch

  • Co-operation and operational harmonisation between exchanges through joint ventures and other forms of strategic alliance, prompted by the European Central Bank under Target2-Securities
  • Vertical integration and inorganic growth into clearing, custody and financial information service provision

Our M&A forecast

An uptick in market consolidation. Main motivation is likely to include regulatory change, such as MiFIDII expanding the types of trading venues which are regulated

   
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Financial benchmarks

Current market

  • Upward, significant levels of M&A

We are seeing

  • Strategic M&A deals

Key drivers

  • Increasing operating costs resulting from the burden of new regulation and heightened regulatory enforcement action risk from both EU and non-EU regulators

Trends to watch

  • A smaller number of market participants having sufficient infrastructure to support a benchmark administration business, given the FCA in effect treats administrators as 'mini-regulators' vis-à-vis their data submitters
  • Uncertain profit margins

Our M&A forecast

Slow-down in M&A activity. Many businesses have already upscaled their operations, but a further 'thinning of the herd' is likely. Main motivations are the new EU Benchmark Regulations, which will bring a number of new benchmarks within the regulatory perimeter, the rise in regulatory and private litigation risk, and data contribution contracts that are becoming trickier to negotiate

   
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Custodians

Current market

  • Flat, with a dip in the levels of M&A

We are seeing

  • Strategic M&A deals
  • Non-core disposals by banks, but some custodians with robust balance sheets focus on organic growth in terms of product lines and jurisdictional coverage

Key drivers

  • Increasing operating cost bases and heightened regulatory enforcement action risk following regulatory reforms
  • Rise in outsourcing arrangements, with BNY Mellon, State Street, J.P. Morgan and Citi remaining predominant. But other market participants are making inroads

Trends to watch

  • Private equity consolidators

Our M&A forecast

Uptick in consolidation M&A. Competition from Central Securities Depositories (CSDs) is one of the main drivers. Due to The EU Central Securities Depositories Regulation, CSDs face increasing competition and are encroaching on custodians

   
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Publicly reported examples


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