Mid-market Activity Dominates FS Deals as M&A Subdued in 2Q10

While financial services (FS) deal activity has failed to live up to recovery predictions cast at the beginning of year, further industry-wide restructuring and investment for growth has resulted in a flow of mid-market deals, according to the latest ‘European Financial Services M&A Insight’ report from PricewaterhouseCoopers (PwC).

Although the overall value of European FS merger and acquisition (M&A) increased during the second quarter of 2010, activity remained at a lower level than the same period of 2009. The value of European FS M&A increased to €10.9bn in the second quarter of 2010, from €7.8bn in the first. Total deal values for the quarter were 46% lower than the €20.3bn recorded during the same period of 2009. However, mid-market activity appears to be on the up and consolidation and restructuring are set to gain pace.

Nick Page, partner, PwC, said: “Economic pressures have made strategic planning a challenge. Concerns over levels of European sovereign debt and banking solvency are casting a shadow over the capital markets contributing to relatively subdued levels of M&A activity.”

Mid-market activity increased significantly in the second quarter of 2010 with the aggregate worth of deals valued at less than €1bn increasing to €6.2bn from €5.3bn in the previous quarter and €3bn during the same period in 2009.

Restructuring in western Europe was the central theme of the quarter. Domestic transactions accounted for 70% of total deal value and five countries dominated, namely, the UK (39% by value), Spain (14%), France (13%), Luxembourg (12%) and Sweden (9%). Government-led activity was insignificant representing only 0.5% of total deal value.

Fredrik Johansson, director, PwC, said: “Mid-market activity, consolidation in insurance, further restructurings in banking and an ongoing rebound in private equity deals have been the beacons of light so far this year and we expect these trends to grow.

“Further consolidation in stressed areas of European banking, such as Greek private sector banks and UK building societies, is likely. Increased disposal of bank branch networks and non-core activities such as asset management by banks which need to satisfy European Commission state aid conditions are also on the cards,” he added.

Gradual Recovery in Growth-orientated Transactions

Over the next few months, PwC believes that we are likely to witness gradual recovery in growth-orientated transactions, albeit with a different focus to the boom years.

Page said: “The increase in growth-orientated transactions will involve cross-border deals aimed at developing and strengthening a commercial presence in rapidly growing markets, such as Turkey, the Middle East and North Africa. Emerging market businesses may also seek to acquire European expertise, especially in wealth management or investment banking, to use across their home or emerging markets.”

M&A to Play an Increasing Role in European Asset Management

Given the threats and opportunities now facing the European asset management community as a result of regulatory pressures, including the Alternative Investment Fund Managers Directive (AIFMD), Undertakings for Collective Investments in Transferable Securities (UCITS IV), and the Retail Distribution Review (RDR), the industry will likely be a driver of European FS M&A activity.

Johansson said: “The increased strategic alignment and restructuring, resulting from the current regulatory overhaul, will result in an increased role for M&A in the asset management industry. To be successful in the future market environment, asset managers, distributors and service companies need to quickly understand the business impact of the incoming regulation and assess the need to make acquisitions, relocate or shift the focus of their operations.”


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