OREANDA-NEWS. November 09, 2009. The first half of 2009 saw extremely low levels of European financial services M&A activity however, as we move towards and into 2010, an increase in deal activity is on the cards, reported the press-centre of PwC.

Michael Knoll, partner, Head of M&A lead advisory, PricewaterhouseCoopers in Russia:

“'Steady as she goes' has been the ethos throughout the 2009 financial services deal market to date. However, a restructuring-led wave of deal activity will gather momentum across the European financial services landscape as we move into 2010. We anticipate that financial institutions will continue to identify, evaluate and sell their non-core businesses."

According to the latest ‘European Financial Services M&A Insights’ (European Financial Services M&A Insights) report from PwC, just EUR32bn-worth of deals was announced during the first half of 2009, compared with EUR 178bn for the whole of 2008. Government involvement has cooled significantly throughout 2009 and if government activity were excluded, the figures would be just EUR 19bn for the first half of 2009 compared with EUR 72bn for all of 2008.

Michael Knoll added:
"The post crisis restructuring in European financial services could bring an increase in the number of private equity backed deals in the sector. An increasing number of firms have expressed interest in the sector - both in the intermediary and services area as well as in the businesses that take underwriting risk."

Key themes also include:
Building societies: an M&A hot bed in the coming 12 months
The UK building society sector has already been in-focus and is expected to remain one of the ‘hot’ areas for M&A activity over the coming 12 months; further deal activity in the sector is inevitable.

Michael Knoll said:
“The continued polarisation of the sector is likely to continue; it is possible that a small number of ‘supermutuals’ that can offer a wider range of products across the UK will become increasingly dominant. These organisations may be well placed to benefit from the commercial virtues of their mutuality in the years to come."

Northern exposure: an opportunity in the Baltics and Eastern Europe
The Baltic and Eastern European markets have provided the Nordic banks with access to faster growing markets throughout the last decade. As the economies of some of these countries have been significantly impacted by the global economic crisis, and the Nordic banks may look to ease the pressure on their balance sheets. As a result, a further round of M&A may take place in this region.

Michael Knoll said:
“The Baltics and Eastern Europe might be a good opportunity for strongly capitalised European and large Russian banks and specialist finance players.  By adopting a long-term view, they may be able to buy assets near the bottom of the economic cycle and then ride the wave of economic recovery in the Baltics and some of the Eastern Europe countries. Russia and Eastern Europe are expected to see accelerated consolidation in the financial services sector. Deal advisory, on the one hand, will be driven by the need of some of the larger European players to dispose of some of their assets. On the other hand, given the more damaging environment, there will be need for local players to merge”.

European asset management: coming in from the cold?
The short-term future is promising. The industry as a whole has stabilised and a number of positive trends are emerging. As a result there will be attractive opportunities for both trade and financial buyers to return to inorganic growth strategies in the short-to-medium term.

In particular, as some large financial services institutions will need to strengthen their balance sheets, large investment managers may continue to be available for acquisition and underperforming small and medium-sized investment managers will attract the attention of financial and trade buyers looking to make bolt-on acquisitions.

A new financial services landscape: the operational impact of divestments
European Financial Services look set to undergo major restructuring, with any increase in M&A activity in the sector being determined by the pace of restructuring in the major financial institutions.

Michael Knoll PricewaterhouseCoopers, said:
“The ability to act decisively may well prove to be the distinguishing feature of those financial institutions that prove successful in using M&A to reshape their organisations.  We anticipate that the change from being acquirers to sellers may not come easily to some financial services businesses.”