Financial services M&A activity down by 25%

European financial services M&A activity has seen a significant slowdown in the third quarter of 2011, says research from PwC.

Total deal values for the second and third quarters of 2011 are the lowest recorded in the history of PwC’s nine-year dataset. Small and mid-market deal activity declined steeply with transactions valued at less than €1bn, totalling just €2.6bn, compared with €5.5bn in the previous quarter. PwC says the European sovereign debt crisis and the underlying market volatility have played significant roles in keeping transaction volumes low during 2011.

The most obvious problems are uncertainty over the immediate outlook, and a lack of confidence in the financial markets as a whole and financial services as an industry. Nick Page, a Transaction Services partner at PwC UK, says: “M&A is always affected by levels of confidence among managers and investors. The senior management of many financial institutions across Europe are rightly preoccupied with problem-solving and other urgent priorities and so cannot give much attention to strategically focused M&A.”

Heightened perceptions of a target’s potential exposure to credit or liquidity risks are also adding to bidders’ concerns. “Executives also fear that board members and investors are less likely to forgive a failed deal in the current market environment,” says Page.

Despite this gloom, PwC believes a number of specific financial services markets and sectors will remain relatively active areas of M&A during late 2011 and the early part of 2012. The value of European financial services M&A activity during the third quarter of 2011 was €5.0bn, 25% lower than the prior quarter’s figure of €6.7bn and 76% lower than the comparable figure of €21.2bn recorded in the third quarter of 2010. 

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