Financial services sees 68% rise in M&A activity

In a recent report titled MA Insights Q3 2015, Allen & Overy found that total M&A values rose by 19 per cent to US$1.047 trillion in the third quarter of 2015 when compared with last year.

Financial services transactions were up 68 per cent year-on-year, with the number of deals’ values executed this year surpassing the total value of deals completed in 2014.

“That marks a significant turnaround for a sector that has been languishing in the doldrums, in terms of M&A activity, since the financial crisis with institutions focused instead on the business of repairing the damage done during the crisis and rebuilding their capital bases,” the report stated.

According to the report, the increased activity has been driven by consolidation in the insurance sector and an increase in US banking transactions.

Allen & Overy found that while insurance deals accounted for only 18 per cent of the total number of financial services transactions, they represent nearly two-thirds of the total value.

“One clear trend is that the industry is increasingly breaking into two blocks, with large general insurers on the one side, and niche players on the other,” the report said.

“Inevitably, that means some mid-sized companies are getting squeezed, and often end up as takeover targets.”

While M&A activity increased within the financial services sector, the report questioned how long the upsurge will continue.

“With so many potential threats to the global macro-economic environment, not least the sharp slowdown of growth in China, it feels like this period could mark a high point for transactions,” the report said.

Allen & Overy also pointed out the influence of the fintech industry on future M&A activity.

Simon Toms, corporate partner at Allen & Overy, said: “The fintech sector is one to watch as we’re starting to see increasing funding flow for companies seeking to expand rapidly, which is a good indicator of likely M&A in the near and mid-term.”

The report said the next few months will likely see the beginning of a consolidation period.

“There are too many new players to succeed in a market that requires a network-style ecosystem,” it said.