Many financial services organisations recognise that organic growth may not be enough to deliver their growth agenda and are looking to mergers and acquisitions to meet their objectives. The value of deals in the European financial services sector rose by more than 70% to €79 billion in 2005, making financial services the second most active industry after energy. Similar trends are evident in the US and Asia.
Financial services mergers & acquisitions 2006, PricewaterhouseCoopers' study of the trends and drivers shaping the takeover market, revealed that much of the recent resurgence in deal activity has been fuelled by cross-border acquisitions as companies in more mature or concentrated markets look for fresh opportunities to accelerate growth, leverage their brands and diversify their income stream.
Many international institutions are focusing ever more closely on establishing and developing their presence in the rapidly growing and increasingly liberalised markets of Asia and other emerging economies. The opportunities are evident. In China, for example, the country’s increasingly affluent citizens have built up residential savings of USD$1.84 trillion, a potential bonanza for investment managers. The challenges in areas ranging from acquisition targeting to culture and regulation can be equally telling and require deep local experience and understanding.
Looking ahead, large scale mergers may continue to prove the exception rather than the rule, with high levels of delivery risk making it difficult to realise the benefits and win support from a sceptical market. It is therefore likely that many groups will seek to broaden their geographical presence and source of earnings through bolt-on acquisitions rather than transformational deals. No doubt size will still be important, not least as a means of deterring potential predators. Yet,
outsourcing, off-shoring and joint ventures could prove as critical as acquisition in shaping this market.
Securing the vital investor support is likely to require exacting valuation, due diligence and communication, especially as the move to
International Financial Reporting Standards has made it easier for the market to judge the success or failure of the takeover. Competition for suitable targets is also proving more intense and the structuring of deals ever more complex, especially at a time when private equity investors are taking greater interest in the financial services sector.
How PwC is assisting financial services organisations
PricewaterhouseCoopers has a global network of specialists who can help vendors and acquirers to maximise the returns on deals and reduce the risks. Services include due diligence, merger benefit analysis, finance, transaction and post-integration support.
