Financial Deals to Accelerate in 2018 Amid Continued Consolidation

Ultra low interest rates, tech enabled disruption and regulatory pressure, all of which have squeezed profitability and increased costs, have created an environment which will drive M&A activity across the financial sector throughout 2018 and beyond.

This is according to our Global Transactions Forecast, which anticipates that global M&A values in the financial sector will rise to USD 616 billion in 2018, up 25% from USD 462 billion in 2017. Similarly global IPO values will grow nearly 40% to USD 84 billion, led by FinTech unicorns raising capital for disruption, many of which will be Asian based.

Before the global financial crisis, many banks made a material chunk of their profits from the net interest rate margin (the spread between customer deposits and customer loans) but have not been able to do so since 2009 because of the extremely low interest rates that US and EU central banks put in place in response to the crisis.

“This has damaged the basic business model of many banks — a problem compounded by other escalating challenges arising from new technology, tech enabled disruption and intrusive regulation,” said David Brimacombe, a financial industry specialist at Baker McKenzie based in London. “Consequently the banking sector will witness substantial consolidation at the national and regional levels.”

blue and grey tables

Financial M&A in 2018: Key drivers

In 2018 we forecast M&A in North America’s financial sector to rise to USD 259 billion, accounting for more than 40% of all sector transactions globally. Following North America is Europe with USD 195.7 billion, Asia Pacific with USD 122.7 billion, Latin America with USD 29.2 billion and Africa and the Middle East with USD 9 billion.

Financial IPOs in 2018: Key drivers

The total value of IPOs in the financial sector rose to USD 51.1 billion in 2017, up from USD 47.2 the year before. In 2018 we forecast IPOs to rise even further to USD 84 billion, driven by a number of factors, including the reprivatization of several large banks that were nationalized during the global financial crisis and the recapitalization of many financial institutions. Fintech start-ups established a few years ago will also fuel the increase in listing values as they scale up and look to IPOs to raise additional funding or to provide exits for their private equity and venture capital investors.

Beyond 2018

Following a peak in deal activity in 2018, we forecast that M&A and IPO transactions in the financial sector will drop in 2019 in line with a larger, worldwide trend of cooling deal activity in developed markets. An exception could be private equity-driven deals as they apply their vast dry powder cash stockpiles and consolidation in Europe if the EU’s banking union plans are implemented. As interest rates rise, global trade and investment growth slows, and equity prices correct, we forecast M&A values in the financial sector to drop to USD 569 billion in 2019 and USS 450 billion in 2020. We forecast IPOs in the sector to decline to USD 82.4 billion in 2019 before decreasing to USD 59.3 billion in 2020.

Download the Financial Institutions Sector Forecast report to read more.

Jeremy Pitts
Jeremy Pitts is the Chair of Baker McKenzie's Global Financial Institution Group, the Managing Partner of the Tokyo office and the Chair of the Management Committee of the Yangon office.
David Brimacombe
David Brimacombe is a Consultant to Baker McKenzies' Global Financial Institutions Group. He spent much of his career at Standard Chartered Bank where he held a number of senior roles including Group Head of Legal, Group Company Secretary, Group Head of Dispute Resolution and Head of Legal & Compliance & Regulatory Risk for EMEA.
Koen Vanhaerents
Koen Vanhaerents is the head of Baker McKenzie's Global Capital Markets Practice.
Craig Roeder is a partner in Baker McKenzie's Chicago office. Mr. Roeder advises clients in a broad range of industries on domestic and cross-border merger and acquisition transactions, including public company mergers and tender offers, joint ventures and strategic alliance arrangements, public and private securities offerings, securities law compliance and corporate governance, and other corporate transactional matters.
Liliana is chair of M&A/PE practice in Latin America and serves in the Executive Committee of the Lima office. Her experience includes mergers, spin-offs, reorganizations and other complex structures in sectors such as fishery, financial systems, telecommunications, retail and services.
Erwandi Hendarta is a senior partner and the Head of Finance & Projects Practice Group in Hadiputranto, Hadinoto & Partners. Erwandi has legal practice areas which include infrastructure, financing (debt, loan, project finance, securitization), M&A (including for banks and financial companies), financials litigation; corporate and debts restructuring.