Global M&A Trends in Financial Services: 2023 Mid-Year Update (2024)

Banking and capital markets

• The recent banking developments will likely have implications for M&A in the banking and capital markets sector, not only in the US but also in other countries. The stresses in the banking system caused by the recent failures of three US banks, together with the broader macroeconomic environment, may put several small and medium-size banks under greater pressure and result in further consolidation over the coming months.
• Recent interest rate increases by several central banks have created for banks both upsides (in the form of increased interest income) and downsides (through the realisation of valuation losses in the banks’ investment portfolios). Although the recent banking failures in the US can be largely attributed to a unique set of circ*mstances, such asbalance sheet mismatches, these events highlight the need for banks to continuously evaluate and adapt their liquidity risk and interest rate risk management practices, especially during challenging economic conditions. The loss of consumer confidence, followed by the depletion of these banks’ liquidity and capital position, raises questions regarding the overall vulnerability of the banking sector. Greater regulatory scrutiny of banks’ own risk management policies and procedures will likely increase operating costs. As such, we expect further consolidation among banking players, particularly regional banks that may seek to build scale to offset higher costs from operating under a more complex and tougher regulatory environment.
• We expect due diligence will expand to address areas such as governance and risk management, resilience of the business model to external factors, inherent risks in third-party ecosystems, and others. Such deal processes will likely take longer, and the analysis will be more complex.
• In addition, restructurings are expected to gain momentum; in the current market environment, banks tend to reduce their lending volumes, which might cause financing problems for businesses going forward. We are already seeing signs of stress in some sectors, such as the commercial real estate sector. This may, in turn, affect the credit quality within the balance sheets of banks. As a consequence, we believe banks will likely consider portfolio transactions to divest non-performing loans or non-core assets as a way to strengthen their balance sheets and improve capital ratios.

Read our key trends for theinsuranceand asset and wealth management sectors.

Insurance

M&A activity in the insurance sector stayed resilient in the first half of 2023 and is expected to remain so for the rest of the year. There are several factors leading to this healthy level of activity:

• We expect to see portfolio optimisation create deal flow in the second half of 2023 as insurers look to simplify product offerings and reduce complexity in their operations.
• The disposal of complex legacy portfolios, which attract high capital charges, offers insurers the opportunity to reduce costs, improve capital efficiency and redeploy capital to core activities whilst offering specialist consolidators the ability to drive economies of scale.
• Dealmakers, especially private equity–backed players, remain keenly interested in the highly fragmented insurance broker market, and we expect further consolidation, which will keep M&A activity strong. Countries such as France and Germany areat the beginning of a consolidation phase, similar to those that started in the US and UK around 20 years ago, in which acquisitions of brokerage firms by rivals and the arrival of new consolidators—many backed by private equity—are becoming a regular occurrence. Investors are attracted to the commercial property insurance broker market due to its growth prospects in the coming years, as well as due to various consolidation opportunities enabling synergies and economies of scale, a generally favourable regulatory environment, and a market that typically generates high margins and stable returns.

Read our key trends for thebanking and capital marketsandasset and wealth managementsectors.

Asset and wealth management

• We expect asset and wealth management (AWM) deal activity to remain robust during the second half of 2023, following a similar pattern to the first half of the year. Many AWM companies continue to use M&A to gain scale and grow as a means to counter slowing organic revenue growth and increased margin pressures. Others are using M&A to acquire new capabilities, access new segments (e.g., crypto assets) and further diversify their business into different asset classes and distribution channels. AWM companies continue to acquire, either through M&A or through strategic alliances, access to digital capabilities that will enable them to drive digital transformation, enhance efficiencies, and improve customer experiences.
• With the current pressure on US regional banks, there is a unique opportunity for alternative asset management firms to step in and fill a void through their private lending arms. We expect this will lead to further deal activity in private credit.
• Private equity interest in registered investment advisers (RIAs) triggered a new wave of platform deals in the first half of 2023. We expect this trend, along with further consolidation among wealth managers, to continue in the second half of the year.
• ESG remains a catalyst for deals in the AWM space, and we expect to see an uptick, particularly in sustainability-oriented investments, in the second half of the year. For asset managers, integrating sustainability principles into the heart of their purpose, strategy and investment management process is necessary to meet regulatory requirements and customer expectations.

Read our key trends for thebanking and capital marketsandinsurancesectors.