OREANDA-NEWS. March 25, 2013. Research from PwC has found a significant increase in European financial services M&A activity during the fourth quarter of 2012. M&A activity increased by 42% from EUR10.5bn in Q3 2012 to EUR 18.3bn in Q4.

This represents a 11% increase on the comparable figure of EUR 16.3bn recorded in the 4th quarter of 2011. Yearly total deal values for 2012 increased by 35% to EUR 51bn compared with 2011, however, this increase is due to five large government-led transactions which took place during 2012.

With these excluded, the total value of private sector transactions in 2012 would have been EUR 30.9bn, 7% lower than 2011 and the lowest level in the ten year history of this report. The 2012 private sector total is only 15% of the 2007 figure.

Of the large private sector banking transactions during 2012, several of which involved cross-border bids. This underlines the way that bank restructuring continues to provide stronger institutions with an opportunity to diversify, build scale or increase their exposure to growth. The year also saw a wave of consolidation among European savings’ banks and mutual lenders and the flow of non-core disposals continued.

Andrew Cann, Partner in PwC, said:
“After a quiet 2011, when the eurozone debt crisis had a cooling effect on M&A, the total value of announced European financial services deals grew in 2012. The headline annual total value of EUR 51.0bn, a 35% improvement on 2011’s figure of EUR 37.9bn, suggests that deal activity in Europe has finally begun to grow again.

“Unfortunately, the full story is not as simple as that. Strip away the government-led transactions and the picture is more mixed, with the value of private sector-led deals actually showing a decrease.”

Insurance and asset management saw few large deals, but plenty of activity. In an apparent contrast to the deal activity generated by banking restructuring, the total value of insurance deals declined for the third year running (by 52% to EUR 4.3bn) and asset management transactions remained very subdued, showing an increase of 20% on 2011 to EUR 2.4bn. Obstacles to transactions in these sectors include volatile financial markets, rapidly changing regulation and, not least, the effects of uncertainty among banking parent companies. Even so, total deal values can give a false impression. A look at the number of announced deals suggests that activity in both sectors is holding up comparatively well.

Looking ahead to 2013, in the short to medium term, we expect European financial services M&A to be shaped by the same range of defensive and forward-looking factors as at present.

Andrew Cann, Partner in PwC, added:
“The prospects for 2013 look set to be bolstered by a more positive business environment. Deal activity will continue to be spurred by the need to streamline structures and finances, the search for greater financial stability, the role of scale in response to margin pressures and the desire to take advantage of faster growing markets.

“2012’s deal data suggests that expectations of a recovery in M&A may be over-optimistic, if not misplaced and we should not expect deals to return to their previous levels or patterns for the foreseeable future. Some of 2012’s deals may also provide us with clues about how European financial services transactions will evolve in future, for example, European markets are increasingly being targeted by bidders from emerging regions in search of capital, expertise and growth. “Cross-border disposals in Europe’s emerging markets are also likely to be a feature over the next year. Several large Western European banking groups still own a network of holdings in Central and Eastern Europe and might welcome the chance to streamline their portfolio. Interest from international buyers is unlikely to be strong in some peripheral markets, but private equity bidders seeking exposure to a potential recovery in CEE valuations may go some way to filling that gap.”