Over 90 per cent of financial services firms would consider M&A

Over 90 per cent of financial services firms have said that they either are planning M&A as a key part of their growth plans or would consider deals if the right opportunities were to present themselves, according to a new survey.

Accountancy and business advisory firm Johnston Carmichael surveyed approximately 300 senior professionals in areas including retail banking, insurance and wealth and private asset management.

Amid ongoing changes across the financial services industry, driven by technological advancement, regulatory change and shifting fiscal policies worldwide, more than two in five professionals polled said that M&A was a major part of their business’ growth strategy.

52 per cent of those polled, meanwhile, stated that they would be interested in a merger or acquisition if the right opportunity arose. Just 4 per cent of respondents said that they would not consider M&A as part of their growth plans.

The most cited motivation for targeting M&A activity was building the economies of scale, either through increasing customer numbers or expanding balances – with 46 per cent naming this as a driver of dealmaking plans. 44 per cent, meanwhile, stated that innovation – in particular the acquisition of new technologies, capabilities or products – was their main motivation.

Johnston Carmichael partner and Head of Financial Services Ewan Fleming said that the survey’s findings “reflect some significant shifts in the financial services marketplace, yet the pre-eminence of the big six in retail banking remains, as scale is seen as a vital factor in achieving success.”

“The reputation of our high street banks suffered greatly following the financial crash losing the trust of government, media and consumers. Additionally, they faced new competition with the growth of digital challengers offering more convenient products and services”, he added.

Fleming continued that high street banks returned to prominence during the COVID-19 pandemic, when they operated a number of government backed emergency loan schemes and that this had been boosted further by “significant investment in new technology.”

Fleming added: “By copying their digital competitors, and in some cases acquiring them, they have also become ‘digital first’ providers and diminished the difference between them and their rivals.”

“Now we are seeing further consolidation across retail banking, including Nationwide’s acquisition of Virgin Money and Coventry Building Society looking to buy The Co-operative Bank, and others are likely to follow.”

“However, it remains to be seen if customers will be happy for their accounts to be operated by a brand they did not choose.”

Despite demonstrating the strong appetite for dealmaking among financial services firms, the survey also revealed that businesses recognise the challenges posed by M&A activity, with the pre-deal and due diligence processes seen as key concerns.

Respondents also stated that it would be challenging to design a target operating model that would enable them to realise the benefits that they forecast that deals could deliver.

40 per cent, meanwhile, identified the integration of new technology post-acquisition as a significant challenge, due to the complexities involved in merging different systems while ensuring that operations continue with limited disruption.

30 to 40 per cent of professionals surveyed also cited challenges including integration planning, governance and compliance, cultural alignment and programme delivery.

Fleming commented: “With funding rounds by fintechs becoming more difficult, businesses that offer something truly unique in the marketplace have the best chance of successfully scaling and operating as profitable independent brands.”

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