09 Jul KPMG: Global Banking M&A Trends 2019
In 2018, the overall banking M&A environment seemed to be headed in two opposite directions, with a slowdown in deal volume paired with an uptick in deal value. Domestic banking deals continue to dominate, making up three‑quarters of all activity.
The US, India, China and the UK remain the most targeted economies. China’s domestic deal activity has calmed somewhat in line with economic growth, while the US has yet to see anticipated deal upturns arising from regulatory relief. India, on the other hand, enjoyed a 22 percent increase in deal volume in 2018 driven by market consolidation and an increase in investments by private equity (PE) investors and sovereign wealth funds (SWFs). Rising regulatory uncertainty and ongoing trade and tariff negotiations — including Brexit and US‑China trade disputes — have served to shroud an otherwise robust M&A market and make it harder to deliver shareholder value. These factors aside, we see plenty of reasons for optimism.
Healthy liquidity is a major driver of M&A, with PE players estimated to have more than 1 trillion US dollars (USD) in ‘dry powder’ — around one‑third of their entire assets under management (AuM). Commercial banks, consumer and micro finance companies, specialty finance, fintech and payments sectors, platform companies, non‑performing loans (NPLs), asset/wealth management and other business services that serve financial services firms should continue to be arenas for investment. With disruptors shaking up the market and making inroads in e‑commerce and e‑banking, banks are looking for strategic partnerships and investments in fintech technologies and respond promptly with innovative solutions. Many already have innovation funds and technology arms.
Globally, consolidation remains a key theme, especially amongst small and mid‑size banks, presenting significant deal opportunities. Additionally, there is increasing pressure to de‑leverage NPLs to satisfy regulators and RoE expectations of bank investors. This deleveraging helps investors seeking returns in a low yield environment. Overall, we expect international investors to gradually shift their NPL investments — currently 100 percent Europe‑focused — towards Asia. Overall, we remain optimistic about the deal environment in 2019, despite the shroud of geopolitical tensions, and regulatory and economic environment in certain economies. Most financial institutions understand the primary trends impacting the industry and the actions needed to respond, with caution, to competitive pressures.