Global financial services M&A outlook
July 25, 2017
Almost wherever you look, there is news of a deal or potential deal in the financial services sector. We remain in uncertain times. On the one hand there is a strive for growth in a post-financial crisis world, embracing the change that the dynamic world of FinTech brings. On the other we are still dealing with the remnants of crisis as old institutions are re-established on a sure footing and the challenges brought about by a low interest rate environment.
In the west it is easy to look to China and the Middle East with their strong capital flows and investment capacity. This money has made an impact and continues to do so, but remains less well understood by Western organisations. Equally, Western money has in part recognised that returns are now harder to come by and there has been some moderation of expectation. These and other factors mean that the marketplace for M&A in financial services will continue to be vibrant for the years to come.
Some themes we expect to see unfold further in the coming years include for example:
- the insurance sector is heavily disrupted with change driven amongst other things by Solvency II and risk-based capital requirements, lower investment returns, changes in customer risks, improved data analytics and also InsurTech. The growth of InsurTech has been remarkable, with a thriving ecosystem of start-ups, insurers, investors and innovators springing up over the past twelve months. For example to free up capital for new business, discontinued books of business will continue to be sold in the life sector and we believe this will become more active in continental Europe and the US. In the non-life sector the rapid advent of electric cars and the real prospect down the road of autonomous vehicles, will change the nature of the underlying risks customers wish to insure. We have recently launched a report revealing how InsurTechs are poised to transform the Insurance industry. For more information - download our report.
- throughout the world the payments sector has been and continues to be at the heart of much of the FinTech activity. Payments is an ideal subject matter due to its high customer contact and transaction volumes which lend themselves to processing improvements, added data analytics and improved convenience for the parties involved. While some may believe we are heading towards the utopian cashless society, we believe that cash will always have a role to play and so the ATM will continue to be with us for our lifetimes and beyond. In Europe we still believe that there is scope to extract cost from the payments industry and this together with the increasing cost of development and high barriers to entry will drive further M&A.
- access to the customer and to more customers has always been a mantra for financial institutions. Clearly this needs to be on a profitable basis but also with an eye to the future. It is a widely held view that we will all need to better provide for our own long-term financial needs and can't rely on the state to provide; this is also true in the fast growth economies of Latin America, Africa and South-East Asia. Those with more far-sighted capital and an ability to leverage simple lower cost business models are looking at how they can secure a good foothold in the long-term savings markets in these economies, some of which may be the billion population countries and regions of the near-future.
So on the one hand we are spoilt for choice and arguably in the time when there is considerable capital for investment. But the business of actually finding deals, assembling them and closing remains as challenging as ever. However with the range of themes driving through the financial services sector, we think the next few years will be busier and more interesting than the last few.