Daily News: February 22, 2013

PwC: Momentum Building in U.S. Financial Services M&A


A new report issued by PwC reveals that financial services mergers & acquisitions (M&A) will face both uncertainty and opportunities in 2013 due to several factors including increased regulatory costs, depressed organic growth, and the greater availability of attractive financing.

However, while 2012 proved to be a challenging year for announced deal activity in the financial services sector, there is some cause for optimism in 2013.

PwC said U.S. banking, insurance, asset management, and other financial services deal activity in 2012 differed very little year over year from 2011. Announced transactions rose from 756 in 2011 to 768 in 2012, but deal value fell from $72.1 billion in 2011 to $62.4 billion in 2012. Deal volume is still down from pre-financial crisis levels.

“The past year has seen a stabilization in many of the challenges facing financial firms after the financial crisis of 2007-2008 such as uncertainty in asset quality and growth prospects, regulatory approvals, and integration of operations, as well as the large number of new regulations coming online,” said John Marra, PwC transaction servicesfinancial services leader. “While obstacles remain, we expect these trends to continue to improve in 2013.”

According to the report:

  • The fourth quarter of 2012 was marked by a significant surge in financial services M&A activity. The pent-up desire for acquisitions that has built up over the past few years, along with concerns about tax increases in 2013, drove M&A activity to a level not seen since Q4 2010.

  • 2012 featured the return of private equity (PE) to the financial services M&A sector, a trend that should continue into 2013. PE-backed announced transactions rose 73% from 40 in 2011 to 69 in 2012. Many of these transactions looked to take advantage of divestitures of non-core assets from certain financial institutions.

  • Cost pressures due to increased regulation such as Dodd-Frank, FINRA, the Consumer Protection Act, along with discussions around Solvency II could induce a wave of consolidation among small and medium sized organizations. On top of that, the continued low interest rate environment may drive well-capitalized financial services companies to turn to strategic acquisitions in search of yield.

    Grounds for 2013 Optimism

    “M&A desire remains high among buyers, and 2012 featured a significant amount of pre-deal activity. However, valuation gaps remain, and differences between buyer and seller perception of future profitability will continue to present a challenge,” Marra remarked. “At the same time, ongoing divestiture of non-core assets by major European institutions will drive deal activity into 2013.”

    Additional Highlights include: (click-on link to report below)

  • Banking: Opportunities Amidst Regulatory Uncertainty

  • Insurance: Momentum is Building, but Yield Concerns Remain

  • Asset Management: Strong Performance Signals Recovery

  • Other Financial Services: Continued Pressures May Signal More Consolidation.

    To download the full report click here.