Insights on financial services M&A | August 2019
Insights on financial services M&A | August 2019
Insight

Insights on financial services M&A | August 2019

Explore topics impacting financial services and banking M&A along with a current overview of financial services valuation trends.

Bank M&A as a tool to improve technology

Historical bank M&A trends were subverted in the first quarter of 2019 by the announced mergers of equals (MOEs) of BB&T and SunTrust ($28.2 billion announced value), and Chemical Financial and TCF Financial ($3.6 billion announced value). These MOEs and other recent large transactions have shed new light on the drivers currently shaping the bank M&A environment.

Firstly, investors are rewarding smart valuations, and regulators appear keen to approve transactions. But more evident in recent mergers is the role of technology as a key deal driver. Banks have become increasingly focused on technology’s impact on their products and customer base as they strive to remain relevant in an increasingly technology-driven environment. Broad access to information through social media has increased customers’ price sensitivity, and the ease of mobile banking has made it easier for customers to switch banks. Additionally, banks are seeking to adopt new technologies as a means of addressing ongoing regulatory scrutiny and growing cyber security threats.

Whereas in the past, deals were driven by factors such as expanding geography, product capabilities, or depositor bases, technology is now a core consideration in acquisitions. Several recent mergers, including the MOEs mentioned above, have focused on synergy realization and reinvestment to enhance technology, which highlights the importance banks are now placing on technology as a means to remain competitive. While MOEs allow large-scale banks to leverage cost savings to invest heavily in technology, we also expect fintechs and digital banks to be attractive M&A targets for both large and smaller banks, as they offer an opportunity to adopt differentiating technology more rapidly than developing it in-house.

Whether technological considerations involve improving the customer experience or fortifying cyber security, technology is now at the forefront of banks’ business strategies, and hence their merger strategies. We expect this trend will continue, and even increase in prevalence, as banks continue to catch up to today’s security needs, customer expectations, and data-driven opportunities.

Financial services valuation trends

Click on the links below to download the charts.

    Price / last-12-months EPS

1. P/ E ratios in the insurance brokerage segment continued to increase in the fourth quarter of 2018 fueled by private equity-backed buyers, accounting for 56.6% of deals announced in the sector during 2018.
 

2. P/ E ratios in all other segments decrased as a result of the ongoing U.S-China trade dispute and other political uncertainities.


    Price / book

1. Broker / dealer divergence in P/B ratio driven by substantial increases in capital markets activity sustaining demand for brokerage and wealth management services

 

2. Price to book values within the banking sector continue to remain steady as loan portfolios across the sector experienced low to modest growth throughout 2018.


    Return on average shareholders' equity (%)

1. ROAE for investment advisors(20.3 in Q4-18) continues to grow as a result of strong investment manager performance in the fourth quarter.
 

2. Banking ROAE grew steadily in Q$ 2018, largely as a function of growth in interest bearing assets and wider net interest margins. Average return on assets in the sector grew to 1.33% for the quarter, compared to 0.58% in Q4 2017.


More insights impacting financial services M&A

 

Caution shrouds optimism: Global banking M&A trends 2019

Despite rising regulatory uncertainty and ongoing trade and tariff negotiations, opportunities abound for bank M&A due to excess liquidity, investment in strategic partnerships and fintech technologies, and consolidation amongst small and mid-size banks. KPMG takes a look at ten trends impacting the global banking industry in 2019, including actions banks can take to maximize value and mitigate risk.

Primary focus on the secondary market

The private equity secondary market has experienced profound growth over the last five years, with deal volume increasing from $28 billion in 2013 to $74 billion in 2018. As investors seek greater risk-adjusted returns and methods to provide quicker liquidity, the secondary market has become an increasingly common space for investors to inject capital. In this article, KPMG explores the strategic considerations involved in entering the secondary market.

Enhance your TPRM due diligence process with third-party utilities: The time is right to transform

In order to decrease costs, financial institutions are looking to streamline the third-party risk management (“TRPM”) process. One approach that is gaining traction is shared due diligence assessments, allowing multiple firms to leverage the same risk assessments of a third party. This method allows for greater transparency and comparability of the due diligence information for the third party. KPMG offers its perspective for how financial services firms can use third-party utilities to gain efficiencies and preserve effectiveness of their TPRM programs. 

The future is open: Reshaping the banking experience

Technology is rapidly changing the banking industry landscape. In the face of evolving customer expectations and new digital challengers, traditional banks are weighing when and how much to invest in emerging technologies to replace their robust but inflexible legacy infrastructure. This article explores the dilemmas that traditional banks face as they confront the future of innovation in the banking industry.

Driving change: How alternative investments organizations help women rise and ROI soar

83% of investors, fund managers, and other industry professionals agree that gender diversity is an important business imperative, and investors have even begun evaluating gender diversity through their due diligence processes. While the concept of gender diversity is compelling, generating greater ROI is the ultimate goal. KPMG examines the factors supporting the case for gender diversity increasing productivity, innovation, decision making, and employee satisfaction.

 

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