Financial services mergers & acquisitions (M&A) will face both uncertainty and opportunities in 2013 due to several factors including increased regulatory costs, depressed organic growth, and the greater availability of attractive financing, a new report issued by PwC US reveals today. However, while 2012 proved to be a challenging year for announced deal activity in the financial services sector, there is some cause for optimism in 2013.
According to the report:
- The fourth quarter of 2012 was marked by a significant surge in financial services M&A activity. The pent-up desire for acquisitions that has built up over the past few years, along with concerns about tax increases in 2013, drove M&A activity to a level not seen since Q4 2010.
- 2012 featured the return of private equity (PE) to the financial services M&A sector, a trend that should continue into 2013. PE-backed announced transactions rose 73% from 40 in 2011 to 69 in 2012. Many of these transactions looked to take advantage of divestitures of non-core assets from certain financial institutions.
- Cost pressures due to increased regulation such as Dodd-Frank, FINRA, the Consumer Protection Act, along with discussions around Solvency II could induce a wave of consolidation among small and medium sized organizations. On top of that, the continued low interest rate environment may drive well-capitalized financial services companies to turn to strategic acquisitions in search of yield.