德勤-银行和证券并购前景（英文）-2018-20页-3mb

2018 Banking and Securities M&A Outlook Summary

Core Content

This document provides an analysis of M&A activity in the banking, specialty finance, investment management, and fintech sectors leading up to and into 2018. It outlines the trends, drivers, and expectations for deal-making in these industries, based on macroeconomic conditions, regulatory changes, and legislative reforms.

Key Trends and Drivers in 2017

• Banking M&A:

  • 250 deals were announced in 2017, similar to 2016.
  • Average deal value was $159.8 million, slightly lower than 2016.
  • Small banks (with less than $1 billion in assets) dominated the market.
  • The Midwest and Southeast regions saw the highest deal volume.
  • The largest deal of the year was the $2.19 billion acquisition of Astoria Financial by Sterling Bancorp.

• Specialty Finance M&A:

  • 66 deals in 2017, similar to 2016.
  • Average deal value dropped significantly to $299 million, down from $655 million in 2016.
  • Deals were focused on driving scale and improving efficiency, especially in the wake of the 2015 GE Capital asset sell-off.

• Investment Management and Securities M&A:

  • 219 deals in 2017, up from 186 in 2016.
  • Average deal value increased to $324.4 million.
  • The largest deals included SoftBank's $3.27 billion acquisition of Fortress Investment Group and a $2 billion PE-led purchase of Focus Financial Partners.
  • Securities M&A activity declined, with 53 deals in 2017 and an average value of $227 million.

• Fintech M&A:

  • 140 deals in 2017, down from 209 in 2016.
  • Average deal value decreased to $255 million.
  • Fintech deals were driven by the need to enhance digital capabilities, streamline operations, and improve customer experience.
  • Key areas of interest included payment processing, digital lending, and financial media/data solutions.

Key Expectations for 2018

• Second-half momentum:

  • M&A activity is expected to pick up in the second half of 2018, especially after the initial impact of tax reform and rising interest rates.
  • Larger banks may focus on acquiring fintech capabilities to enhance digital offerings.
  • Smaller banks may continue to consolidate, while private equity firms may look to monetize crisis-era investments.

• Efficiency improvements:

  • As banks adapt to post-recession regulatory changes, efficiency ratios are expected to improve.
  • This could lead to better stock prices and more attractive earnings for sellers, helping to bridge bid-ask spreads.

• Valuation dynamics:

  • Bank valuations have been rising as a percentage of tangible common equity.
  • A market correction could lead to increased M&A activity, or firms may accept the current valuation as the "new reality."
  • Sellers may seek higher deal multiples to offset inflated stock prices.

• Fintech demand:

  • Despite reduced deal volume, fintech remains a strategic priority for financial institutions.
  • Smaller fintech deals may continue, but alliances and joint ventures could become more common due to the risk of outdated technology or cultural mismatches.
  • Consolidation in payments and digital lending is expected, with some firms struggling with long-term funding stability.

• Regulatory and legislative reform:

  • Regulatory clarity and tax reform legislation are expected to boost M&A activity.
  • Key changes include raising the asset thresholds for enhanced prudential standards and DFAST, potentially reducing regulatory pressure on mid-sized banks.
  • The Volcker Rule may be simplified, allowing banks to invest more in alternative investment management vehicles.

• US Tax Reform Impact:

  • The tax reform bill reduced corporate tax rates from 35% to 21%, boosting bank earnings and capital availability.
  • It also introduced a one-time transition tax on overseas earnings, which could provide liquidity for M&A.
  • NOLs (net operating losses) will be applied at the new, lower tax rate, potentially reducing their attractiveness as M&A incentives.

Other Influencers

• Interest rates:

  • Rising rates may increase competition in lending and deposits, leading to a shift toward organic growth.
  • However, for banks facing liquidity or loan origination challenges, acquisitions could offer more stable deposit access.

• Financial valuations:

  • Industry valuations have risen, influenced by the 2017 stock market rally and expectations of regulatory easing.
  • Higher valuations may both encourage and deter M&A activity depending on market conditions.

• Retail credit card portfolios:

  • With declining retail store growth, credit card portfolios of struggling retailers may become attractive acquisition targets for banks and specialty finance firms.
  • These portfolios could be white-labeled and operated at lower costs through scale and process optimization.

Conclusion

2018 is anticipated to see a pickup in M&A activity across banking and securities, driven by favorable regulatory and legislative changes, rising interest rates, and improved valuations. However, challenges such as market uncertainty, high valuations, and the need for strategic alignment will continue to shape the deal landscape. Fintech and specialty finance sectors are expected to remain important, with a focus on scale, efficiency, and digital transformation.