The global financial services industry registered a decline in overall deal activity, with the number of deals falling from 587 in Q4 2016 to 561 in Q1 2017 according to GlobalData, a recognized leader in providing business information and analytics.
Mergers and acquisitions (M&A) accounted for 72% of total deals, followed by venture financing and private equity (PE) with 22% and 6% shares, respectively. Changing political and economic scenarios – including Brexit, the US election, and a slowdown of growth in China – created a sense of uncertainty globally. This impacted M&A and PE deals, which fell by 8% and 26%, respectively. But venture capitalists remained optimistic, resulting in a 23% jump in venture financing deals.
According to GlobalData’s latest report, the financial services industry continues to experience rapid consolidation, with 404 M&A deals worth a total of $20 billion registered in Q1 2017. Activity was particularly prominent in the insurance sector, which accounted for 43% of M&A deals, followed by banking, wealth management, and payments.
Ravi Sharma, Senior Financial Analyst at GlobalData, states: “There has been a rise in regional M&A deals in Asia-Pacific. International banks are downsizing operations, providing an opportunity for local banks to expand their presence to other markets within the region and increase scale.”
PE investment was most impacted by the global uncertainty. Despite the challenges, insurance continues to attract PE investments, with a 38% rise in insurance PE deals. As an increasing number of insurers dispose of their non-core operations, PE firms are acquiring them at attractive valuations.
In the midst of this decline, venture financing witnessed exponential growth, mainly driven by the increasing focus on fintech companies. Venture capitalists are making investments in fintech-related companies – particularly in the areas of blockchain, digital currencies, and robo-advisory. Meanwhile, rising pressure on profitability and the growing consumer preference for digital banking are factors driving the concept of digital-only banks in Europe, the growth potential of which is attracting investments from venture capitalists.
Sharma concludes: “Fintech will remain at the forefront of deal activity, as an increasing number of financial institutions are investing or entering into partnerships with these companies in order to improve their business.”
– Information based on GlobalData’s report: CountryFocus: Smart Money Investing in the Financial Services Industry – Q1 2017.