2009 US Financial Services M&A - analysis and trends

On the road again - Transactions in an opportunistic market is an annual report that sets out analysis and commentary on the US financial services industry's principal trends and driving forces in 2009. It also includes an outlook for 2010 in banking, asset management, insurance and other subsectors.

After one of its slowest years in recent memory, the financial services M&A market remains uncertain over the timing of the economic recovery and impact of proposed regulatory, healthcare, and tax reforms. Optimism driven by an apparent recovery in GDP growth has been tempered by stubbornly high levels of unemployment, which are forecast to remain for some time. However, transactions are on the move again. Deal values are attractive within certain subsectors, and some strong players have the surplus funds needed to support deals given the recovery in equity markets and easing debt markets. In addition, contractions in the price expectation gap between buyers and sellers in 2010 for certain subsectors may encourage sellers to move forward. Finally, despite the fact that leverage is still scarce, private equity activity is increasing.

Below are some of the key factors expected to affect M&A activity in 2010 across the main financial services subsectors:
  • Banking. Continued high credit losses, weak asset generation, and a reduction in the availability of cheap liquidity will make it difficult for banks to return to historical levels of profitability and growth.
  • Asset management. Asset managers are likely to benefit from increased savings rates. Individual investors, however, remain averse to the market volatility that significantly impacted their savings and retirement accounts.
  • Insurance. Insurance companies achieved improved performance in 2009 driven by the recovery in asset values; however, continued soft pricing in property and casualty insurance and a shift to safer products for life insurance may mean lower profits in the near future.
As the economic recovery advances and the financial services industry begins to show signs of normalcy, we expect to see an uptick in the volume of non-distressed deals. The current environment presents many opportunities for buyers to take advantage of dislocation in the market, particularly those with cash to do deals, and those who are able to think creatively, understand sellers’ needs, and form relationships to identify opportunities early.