Reflecting on the first six months of 2019, the financial services sector has been the most active industry in terms of M&A activity. According to Experian, an increasing number of shares highlighted that the financial sector saw a year-on-year increase in deal activity and also remained the most fruitful source of M&A activity in H1 of the year.
In terms of economic factors supporting M&A within financial services, the long-term low interest rates mean debt remains cheap suggesting these factors will continue to facilitate robust deal-making this year. Additionally, high levels of cash sitting on both corporate balance sheets and in private equity funds (also known as ‘dry powder’), is driving deal activity in this sector as PE firms are under pressure to deliver returns to investors. Consequently, PE driven M&A activity in financial services is expected to remain strong throughout 2019 and 2020 driven by both PE and corporate activity.
Recent times have also been transformational for fintech M&A in particular, due to financial services being in full acceptance of technology acquisitions to provide solutions to their operational and business challenges as well as help expand their market share.
Within the payments sector of this industry, UK payment firms continue to represent appealing acquisitions for the financial services, due to the strong and growing trend towards contactless payments. According to Enterprise Times, 2018 experienced debit card payments overtaking cash payments for the first time in the UK. An advantage is that cash-less payments or open banking allow budgeting, planning due payments and reviewing purchases that have recently been made.
Furthermore, there are other key factors that influence M&A and have the potential to shift the financials services landscape such as rising platforms. The increase in customer choice will have an impact in the design and distribution of products and will force organisations to change. Platforms that offer the ability to engage with different financial institutions will from a single channel may become the main model for the delivery of financial services.
Largest and most notable deals to date
According to Experian considering the top deal of the year so far, 2019 started off with an impressive deal transaction that involved the acquisition of UPC Switzerland LLC by Sunrise Communications Group AG, Switzerland in transaction value of over £4.8 billion. Other deal highlights of the year so far include: the institutional buyout of Merlin Entertainments Plc by Berkeley Bidco Ltd in a deal value of over £3.3 billion; the acquisition of RPC Group Plc Rushden by Berry Global Group Inc USA in a deal value of over £3.3 billion and; the institutional buyout of Inmarsat Plc by Triton Bidco (Guernsey) Ltd in a deal value of over £2.5 billion, among other deals.
Additionally, according to Zephyr, almost a quarter of deals that took place in the first 6 months of this year within the financial services sector, involved an overseas acquirer. Some of these acquisitions include Savills Plc by Liontrust Investment Partners LLP in a £97 million deal value; Water Treatment Products Holding Ltd by Sdiptech AB in a deal value over £23 million; AA plc by Societe Generale in a deal worth over £13 million; acquisition of City of London Group Plc by DV4 Ltd; acquisition of Digitalbox Publishing (Holdings) Ltd acquired by Polemos plc; and Mosaic Smart Data Ltd acquisition by JP Morgan.
Importance and contribution of financial services to the UK economy
The financial services sector is one the most influencing industries within the UK due to the economic output it delivers. According to a report from the Parliament, this industry alone contributed £132 billion to the UK economy which is worth 6.9% of the total economic output. London was highlighted as the largest region where almost half the sector’s output was generated. This sector has also generated around 1.1 million financial services jobs, a trade worth £44 billion as well as a contribution of £29 billion in taxes within the UK in 2017/18. Taking these into consideration and the opportunities within the sector, the financial services sector has scope to continuously flourish and drive the volume of M&A.