Daily News: February 27, 2014

A&M Report: Deal Activity Poised For Growth

This year will see accelerating deal activity due to strong market fundamentals and pent-up demand by both corporate and strategic investors, according to a new report released by Alvarez & Marsal.

Analyzing key financial services industry dynamics and deal drivers, the report forecasts substantial M&A activity growth across the banking, insurance and asset management sectors.

“Stronger macroeconomic fundamentals and improving liquidity and capital levels have shifted the focus of financial services firms from preservation and strategic rationalization to growth,” said Osman Khan, managing director and financial services M&A leader with A&M’s Transaction Advisory Group. “With weak organic growth prospects and increasing desensitization to continued regulatory pressure, financial services firms will seek growth via acquisition to expand product capabilities, realize cost synergies and develop scale in an increasingly commoditized environment.”

Among the factors expected to spur 2014 M&A growth across the financial services industry, the report points to:

  • A steadily improving macroeconomic environment and historically low interest rates, which will drive the abundant availability of leveraged credit, giving buyers and sellers the confidence to push forward with deals
  • An increasing desensitization to continued regulatory pressure across the industry; savvy investors will look through the regulatory “white noise” and execute deals rather than continue to wait for future clarity
  • Recognition that technology and disintermediation is driving the need for innovation and scale to remain competitive
  • Stronger credit performance, which is already leading to greater liquidity and capital levels; with weak organic growth prospects, firms will seek to grow via acquisition or will feel pressure to return capital to shareholders
  • Increasing commoditization, which will drive the need for growth by acquisition in order to drive product, geography and margin expansion and realize cost synergies
  • The full report, titled “Rising Tides: A Case for Growth – 2014 Financial Services M&A Trends,” analyzes data obtained from SNL Financial as of January 1, 2014. In addition to forecasting 2014 growth, it examines the factors behind deal activity in 2013.