24 April 2007 - European deal values in the financial services sector increased by 77% over the previous year to reach €137 billion, reports PricewaterhouseCoopers ‘Financial Services M&A: Going for growth in Europe’, the annual analysis of financial services M&A activity in Europe. Domestic transactions in 2006 also moved firmly back into the spotlight, tripling in value over 2005 levels to reach approximately €76 billion.
Banking merger and acquisition (M&A) activity across Europe increased steeply with the total value of banking deals more than doubling to almost €99 billion, a remarkable growth rate which reinforced it as the most dominant sector in European financial services M&A. The insurance sector also experienced growth in the total value of deals during 2006, however M&A activity in asset management dropped substantially.
Italy was the most active European market in 2006, accounting for 48% of total activity and more than 50% of the top ten deals by value. The top twenty European deals involving Italian targets were worth €62.7 billion during the year. Although French targets accounted for the second largest total value of bids, the majority of activity was domestic in nature. However, despite the absence of cross-border bids for French financial services companies during the year, French firms were bidders in no fewer than seven of the thirteen cross-border transactions falling within the year’s top twenty deals. Activity in Germany, the busiest country in 2005 with 28% of total deals by value, declined steeply to just 1.7% of the total in 2006.
Several large deals involving targets in Southern Eastern Europe (SEE), particularly Greece and Turkey, contributed to the growing importance of this region, while in contrast the relative weighting of activity in Central and Eastern Europe (CEE) and Russia declined.
Paul Cunningham, partner in Assurance services, PricewaterhouseCoopers Czech Republic, and leader of PricewaterhouseCoopers Financial Services group for CEE, said:
“The CEE market is no longer a high risk undiscovered frontier. Many countries in the region are now EU members and CEE is proving to be a developing market with proven growth and profitability. There are currently over 75 international banking groups active in the CEE region, mainly from Austria, Italy, Belgium and France, and the five major players own more than 50% of the banking market in the region (HVB/Unicredito, KBC, Erste Bank, Raiffeisen and Société Générale). Therefore it is likely that future M&A transactions within the CEE region will be driven by the effects of consolidation and reorganization of the international banking groups investing in the region.”
PricewaterhouseCoopers analysis identified some key strategic themes at work in European financial services M&A. These include:
- The ongoing drive to build national champions, particularly in Italy
- European banks, and the French ones in particular, continue to develop second home markets in search of growth and for strategic positioning
- Cross-border bidders looking for higher growth shift focus from CEE to SEE. In addition, SEE banks are beginning to seek their own foreign targets
- Focused disposal of insurance assets by bancassurers
- Interest from private equity houses continues although volumes are down
Banking
- Banking transactions represented 72% of the value of all financial deals
- Fifteen of the year’s largest twenty deals involved banking targets
- The recent and ongoing banking M&A across emerging Europe is set to continue, although the rising deal prices may put pressure on some acquirers, possibly resulting in reversal of some acquisitions in due course
- Europe is not considered to be the preferred market for US banks during the next 12-24 months.
Insurance
- M&A activity in the insurance sector reached €25 billion, representing an increase of 34% on the previous year
- Distribution will continue to represent a major area of interest. In the motor and personal lines market a period of hardening rates and anticipation of improving profits may also encourage increased investments and contribute to a period of interest by private equity in the non-life sector.
Investment management
- M&A volumes in the asset management sector dropped to less than €2 billion in 2006 from more than €7 billion in 2005
- Despite continuing consolidation in the US investment management sector, European banks and insurers seem to be holding on to their asset management businesses as they can support groups’ P/E ratios and offer synergy potential in cross-border deals.
Nick Page, partner in the Transaction Services, Financial Services group at PricewaterhouseCoopers United Kingdom, said:
“Those that were looking for 2006 to be another strong year in European financial services M&A were not disappointed. Overall we are optimistic of continued high levels of M&A in European financial services. The ongoing pressure for consolidation, led by the banking sector, is expected to continue, driving both domestic and cross-border deals. We also anticipate increased activity across emerging Europe as larger European players position themselves for growth, as well as a greater number of private equity backed deals throughout the European financial services industry.”
END
Notes to the editor:
- For a copy of Financial Services M&A: Going for growth in Europe, please contact Petr Podzimek (petr.podzimek@cz.pwc.com) or Lenka Èábelová (lenka.cabelova@cz.pwc.com).
- Central and Eastern Europe (CEE) is defined as Poland, Hungary, Czech Republic, Romania, Estonia, Lithuania and Croatia and South Eastern Europe (SEE) is defined as Greece, Turkey, Cyprus, Serbia and Montenegro, Bulgaria.
- Other PwC press releases, publications, surveys and expert articles can be found at http://www.pwc.com/cz/eng/press.
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