Financial services valuations market snapshot - industry remains resilient in the face of uncertainty
June 06, 2017
We recently released the second issue of our financial services valuations market snapshot. Our report will give you our view of the current valuation trends, deal climate and sub-sector analysis covering banking, insurance and asset management. The full report includes market data and valuation metrics such as quoted company valuation multiples, M&A activity, return on equity, country credit risk spreads and regulatory capital.
In this blog I’ve highlighted a snapshot of the key issues impacting the banking, insurance and asset management sub-sectors within financial services.
- Since the start of the year, the European economy has started to show growth and unemployment is falling further. The banking sector strongly correlates to the underlying economy and some of the Q1 2017 (e.g. Lloyds Banking Group) result announcements have exceeded analyst expectations. There are however, some laggard banks (mainly in Italy) that will require further restructuring and recapitalisation. We have seen multiples for UK banks rebound to where they were just before the EU referendum. There is an element of recovery following the unexpected outcome of the EU referendum and the sentiment that IFRS 9 (the new accounting standard that brings forward the recognition of loan losses) may not be as punitive as initially feared. Despite the recent rebound, we would caution that there are other regulatory changes in the pipeline that could reverse this trend.
- The UK non life insurance sector has undergone a number of specific challenges over the last year, most notably the continued problematic underwriting environment experienced by the London Market and the unexpected cut in the Ogden discount rate. Despite these challenges, the industry remains robust and company valuations continue to be attractive. As a result of the EU Referendum vote, passporting has become a major concern across the sector. We are seeing a number of insurers developing restructuring strategies to set up new EU subsidiaries, effectively enabling them to write European business in the event that passporting rights are lost through Brexit negotiations.
Sector: Asset Management
- The UK’s assets under management have continued to increase despite withdrawals post the referendum, driven by inflows and positive market movements. Asset management trading multiples have reverted from their post-Brexit levels and are now within their long term range of 8x to 10x EV/EBITDA. M&A activity has also gathered significant pace in the past few months driven by multiple strategic considerations including scale, expansion into new products, solutions and markets, access to talent, technology, and regulatory changes. We expect these drivers to continue positively impacting the deal momentum in upcoming months.
Get in touch with me if you’d like to get an understanding of what your business, shares or assets are worth in the context of your transactions, strategic decision making, financial reporting, dispute, tax planning or group restructure.