Financial Services deals lead M&A

Date: 17-03-2008
Source: Dow Jones International News

Financial services accounted for almost a fifth of the European mergers-and-acquisitions market in 2007, according to a report from PricewaterhouseCoopers.

The value of the deals in the European financial services sector rose 52% to EUR207.7 billion from EUR136.9 billion the previous year. Royal Bank of Scotland Group PLC's (RBS.LN) acquisition of ABN Amro Holding NV (ABN) accounted for around a third of the total. The number of deals exceeding EUR1 billion increased to 31 from 18 in the previous two years. There was notable growth in small- to mid-cap deals under EUR500 million as well, which expanded in number by almost 64% over 2006 levels.

Cross-border deals represented two-thirds of deals by value in 2007, boosted again by the sheer size of the ABN transaction.

The report predicted that M&A activity in the sector will continue to develop despite a cooling economy. "The credit crunch looks set to change the financial services M&A landscape for some time. Banks that are highly dependent on the capital markets for funding could well face forced sales in 2008," said Nick Page, a partner in the transaction services group of PricewaterhouseCoopers.

"Deposit-rich Asian banks may find overtures to European banks more warmly received than just a year ago, and we are likely to see more banks welcoming the capital offered by sovereign wealth funds," he added.

Deals in the banking sector accounted for a significant proportion of activity, with EUR141.4 billion of announced deal value in 2007. This lifted the total value of banking deals beyond that of all financial services activity in the prior year.

Supporting this was a striking 72% growth in the value of insurance deals and a more than fivefold growth in asset management deals.

Insurance M&A continues to be driven by the pursuit of scale in Europe. The fight for Resolution PLC (RSL.LN) illustrated the willingness of major insurers to undertake transformational deals, and highlights that a number of listed insurers are vulnerable to takeover.

Private equity featured strongly in European financial services M&A, the report said. But it added that this year looks set to be a challenging year for private equity as banks tighten their lending criteria and pricing.

A PricewaterhouseCoopers survey of financial services companies found that 81% believed that the number of private equity sponsored buyouts would fall in the coming year, while 86% expected levels of leverage to fall. "This could see (private equity) houses focus on mid-market financial services deals, or perhaps focus on opportunities in CEE (Central and Eastern Europe) which offers some exciting and interesting prospects for M&A in European financial services".