Banking and capital markets deals insights: Q2 2019
Deal value and volume overview
Banking and capital markets firms reported 89 deals with total announced value of $7.3 billion during the second quarter.
- Deal value fell 80% compared with the first quarter, when BB&T and SunTrust Banks announced a merger. In contrast, deal volume was little changed from the first three months of 2019.
- Commercial and retail banks remained the most active sub-sector among banking and capital markets firms, accounting for 62% of announced deals during the second quarter. We expect continued consolidation by community and regional banks in coming months.
"Although financial services tapped the brakes in deal activity, we still see many attractive opportunities, especially as industry definitions blur. The current round of payment processor deals, for example, affects banking and technology, too. Leaders are finding ways to consolidate their areas of strength—and shed assets that no longer make strategic sense.”
Banking and capital markets outlook
We expect these trends to shape the deals landscape in coming months:
- Outlook for interest rates. Uncertainty about the level of future monetary policy accommodation inhibited deal activity during the second quarter. Federal Reserve policy makers have recently expressed openness toward reducing the benchmark interest rate during the third quarter. In the short term, greater accommodation would reduce spreads. New opportunities for dealmaking may emerge in the medium and long term as valuations adjust to a possible tightening of spreads.
- Share buybacks. Some of the largest US banks have apparently determined that their shares are undervalued and spent billions of dollars in recent years buying back stock rather than paying rich multiples for other businesses through M&A. Smaller banks may begin exploring similar buyback programs.They may curtail dealmaking activity should they too decide to channel excess capital to shareholders.
- Credit unions on the prowl for banks. Credit unions, seeking to increase scale, are buying banks at the highest rate in five years. They are intensifying the competitive environment with their willingness to pay more for banks than other firms. We expect this trend to continue during the second half of 2019.
- A focus on payments processing firms. The quickly evolving payments sub-sector encompasses a wide range of participants and offers new opportunities for M&A. Banks seek innovators in payments to customize services and boost profits. We already have seen significant consolidation among payments and FinTech firms eager to increase their scale and products. During the second quarter, Global Payments bought Total Systems Services for $26.7 billion. This convergence of financial services and technology is reshaping related businesses.
