Financial sector M&A activity weak, says PwC

The volume of mergers and acquisitions deals in the UK financial services sector decreased by 40% or almost €7bn in the first quarter of 2012, according to professional services firm PriceWaterhouseCoopers.

Research from PwC has found that M&A fell by 40% to €9.7bn in the first quarter of this year, from €16.5bn in Q4 2011. This is also 1% down on the comparable figure of €9.8bn recorded in the first quarter of 2011.

However, PwC highlights that figures were seriously distorted by the €5.8bn sale of RBS Aviation Capital to Sumitomo Mitsui. Not including this deal, quarterly figures would have been one of the lowest in the past nine years at only €3.9bn.

There were only four deals valued between €250m and €1bn in Q 2012, compared with eight in Q4 2011 and six in Q1 2011.

UK banking deal volumes were down 67% on the previous quarter, while UK insurance deal volumes were up by 63% compared with the first quarter of 2011. PwC points to the ongoing market turmoil, the uncertain economic climate and limited availability of debt finance as reasons for decline in M&A activity in small to mid-market financial services.

Fredrik Johansson, transaction services director at PwC said: “While concerns over the eurozone crisis, the outlook for the European economy and the impact of incoming regulation are making some buyers reluctant to engage in deal activity, these very challenges also make the impetus and rationale for M&A all the more pressing.”

“As growth slows and tougher capital requirements come into play, financial services businesses are facing increasing pressure to shore up their balance sheets, seek out new sources of growth and divest non-core operations.”

“As uncertainty and risk-aversion on the one side come up against the pressure for restructuring and strategic reorientation on the other, the fluctuations in quarterly deal values are likely to persist for some time to come.”

Nick Page, transactional services provider for PwC, added that the increase in activity at the end of 2011 was unlikely to be sustained through the first quarter of this year.

“Signals from the M&A market continue to be mixed. European financial services deal values in the first quarter of 2012 were down on the final quarter of 2011, though it was unlikely that the flurry of activity seen at the end of 2011 would be sustained.”

“What was perhaps most exceptional was the low level of banking deals in Q1 2012. The total value of banking transactions was €1.9bn, much of which came from CaixaBank’s merger with local counterpart Banca Civica, valued at €977m. This compares with an average quarterly deal value of more than €6bn in the banking sector over the past two years.”


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