Financial services M&A update Q2 2016 – Inbound investor interest set to rise
August 17, 2016
Blog snapshot
- Financial services M&A activity in good health during Q2 2016
- But one mega deal skews average deal values
- Anticipating quieter Q3 2016 for M&A
- Investor interest set to rise in medium to long term
The financial services (FS) mergers and acquisitions (M&A) market continues to play a big part in the overall UK M&A market – of all the deals valued at over £25m involving a UK asset in the second quarter of 2016, over 24% were FS deals. There’s also been a significant uplift in both the volume and overall value of FS deals over the four quarters to the end of Q2 2016 compared to the same period the year before.
Rolling four quarter comparison
(Four quarters to the end of Q2 for each of 2014, 2015 & 2016)
| Year to end Q2 2014 | Year to end Q2 2015 | Year to end Q2 2016 | |
| Volume | 41 | 37 | 90 |
| Total deal value | £10,292m | £20,200m | £33,666m |
| Average deal value | £251m | £546m | £374m |
Source: Thomson Reuters, Prequin & PwC analysis as at 30 June 2016
While total deal value for FS shows a marked increase for the second quarter of 2016 compared to the first quarter of the year, this is skewed somewhat by Visa Inc’s acquisition of Visa Europe – excluding this deal, average deal value dropped to £126m in Q2 2016. The Visa deal, to unify the brand globally following a split in 2006, was a strategic play to gain scale and cut costs.
Recent quarter on quarter comparison
| Q1 2016 | Q2 2016 | Variance | |
| Volume | 19 | 22 | 16% |
| Total deal value | £9,220m | £17,540m | 90% |
| Average deal value | £485m | £797m | 64% |
Source: Thomson Reuters, Prequin & PwC analysis as at 30 June 2016
Another significant deal in Q2 2016 was Just Retirement Group’s acquisition of Partnership Assurance Group for £664m to offset the slump in annuities and to generate scale, both in response to recent pension reform.
In addition to this, Non-Standard Finance bought Everyday Loans for £235m as part of its strategy to consolidate non-bank lenders.
What does the future hold in store?
Fairly soon after the result of the EU referendum was announced we saw some deals being postponed. But we are now seeing signs that, having got over the initial shock, activity levels are recovering.
I predict that, due to impending Brexit and the natural summer quiet period, FS M&A deal activity in Q3 will be slightly quieter than usual. However, this is likely to pick up in the fourth quarter.
In the medium to longer term I expect to see an uptick in inbound investor interest driven by a weaker sterling; continued interest in the UK due to solid growth prospects & an open market; and the effect of the referendum accelerating decisions around core and non-core assets keeping a good flow of businesses open to M&A.
Do get in touch if you wish to discuss any of the issues I’ve raised here.
