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PwC report predicts revival for FS M&A

Finance Blogger: Anthony Harrington Anthony Harrington

There was good news and bad news for mergers and acquisitions watchers in the latest European Financial Services M&A Insight report from PwC. The bad news was that 2009 was a year when deal-making in the banking sector dived to its lowest level in the seven years PwC has been compiling this report (excluding deals by governments to prop up failing banks, of course). On the up side, insurance deal values were at a comparable level to 2008.

The good news was that the PwC report, which was based on the results of a survey of more than 200 participants in financial services institutions across Europe, found strong evidence for a probable pick up of deal making activity as 2010 unfolds. Nearly three quarters of respondents expected deal activity to increase over the coming year. Some 40% of respondents thought that deal level could even return to the rich pickings seen in 2006 and 2007.

In the view of PwC, British banking is likely to be a key focus of activity in the latter part of 2010, with foreign institutions likely to be in the forefront of buyers looking to snap up the parts of existing banks as the parent bank divests itself of non-core activities through one or another restructuring exercise. The pressure on large banks, particularly those who have benefited from government largesse, from the European Union’s competition rules, looks certain to drive a mini boom in M&A, PwC says.

At the same time the fact that insurance companies are now going to have to move to implement the capital adequacy provisions of Solvency II, the regulatory framework for the sector, means that many insurers are going to be rethinking their businesses. They will all have to assess the cost of capital associated with each of these businesses, as seen through the new prism of Solvency II. Many will find that they are no longer particularly pleased with the impact on their capital structures of some elements of their operations, given the new provisions, and that too, will drive a spate of divestment driven M&A opportunities, PwC says.

A fairly exact feel for just how far off the pace 2009 was can be seen from the fact that for financial services deals where values were disclosed, the Europe-wide total for 2009 was just €80 billion, compared to €178 billion in 2008 and €208 billion in 2007—and the shocking thing is that this figure includes government deals, such as the nationalization of the Royal Bank of Scotland and HBoS. Strip those deals out and the total deal value for 2009 amounted to just €26 billion, which is a long way shy of the €45 billion recorded for 2004.

Among the private sector deals done (as opposed to government investments), State Street bought Intesa Sanpaolo’s securities services units for €1.8 billion; Aviva put 38% of Delta Lloyd on the Amsterdam Stock Exchange for a total value of €1.1 billion and JP Morgan bought out Aviva’s joint venture with Casenove for €1.1 billion. The dominant deal however was the second quarter sale by Barclays of Barclays Global Investors (BGI) to BlackRock for €9.7 billion (one of the largest asset management transactions ever, PwC says).

Further reading for mergers and acquisitions

Tags: Mergers and Acquisitions , PricewaterhouseCoopers (PwC) , private equity , real economy
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