There has been a significant slowdown in European financial services merger and acquisition (M&A) activity during 3Q11, research from PricewaterhouseCoopers (PwC) has found. PwC believes a number of specific financial services markets and sectors will remain relatively active areas of M&A during late 2011 and the early part of 2012. The value of European financial services M&A activity during 3Q11 was €5.0bn, 25% lower than the prior quarter’s figure of €6.7bn and 76% lower than the comparable figure of €21.2bn recorded in the third quarter of 2010.
Total deal values for the second and third quarters of 2011 are the lowest recorded in the history of PwC’s nine-year dataset. Small and mid-market deal activity declined steeply with transactions valued at less than €1bn totalling just €2.6bn, compared with €5.5bn in the previous quarter. The European sovereign debt crisis and the underlying market volatility have played significant roles in keeping transaction volumes low during 2011.
The most obvious problems are uncertainty over the immediate outlook, and a lack of confidence in the financial markets as a whole and financial services as an industry. “M&A is always affected by levels of confidence among managers and investors,” said Nick Page, a transaction services partner at PwC UK. “The senior management of many financial institutions across Europe are rightly preoccupied with problem-solving and other urgent priorities, and so cannot give much attention to strategically focused M&A.”
And even when M&A remains on the agenda, heightened perceptions of a target’s potential exposure to credit or liquidity risks are seen to be cooling bidders’ enthusiasm. “Executives also fear that board members and investors are less likely to forgive a failed deal in the current market environment,” explained Nick Page.
PwC estimates that non-core assets in the European banking sector are worth more than €1.3 trillion. Even if these disposals are spread over a decade, portfolio transactions represent a significant source of deal flow with banks in Spain and the UK having the greatest potential to generate sales during the coming year, followed by Germany and Ireland.
Fredrik Johansson, transaction services director at PwC, said: “Despite the undoubted difficulties of deal-making in the current environment, we believe a number of specific financial services markets and sectors will remain relatively active areas of M&A at the end of 2011 and in 2012.”
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