Financial services dealmaking reaches 10-year high as appetite rebounds

Dealmaking in the UK’s financial services sector reached its highest level in a decade in the first half of the year as top firms scrambled for safety in scale amid economic volatility, fresh data has revealed.

Financial services mergers and acquisitions (M&A) hit a high of 160 deals in the six months to the end of June, up from 138 in the same period in 2022, according to figures from EY shared exclusively with Morning Wire

Deal value slumped, however, as market turmoil and a gloomy economic outlook continue to spook dealmakers. 

The total deal values fell from £11.5bn in the first half of 2022 to £4.7bn in the first half of 2023, representing the lowest level of activity by value since the start of the pandemic, according to the new figures.

Asset managers, brokers and smaller investment banks have been at the forefront of the deals flurry this year as they hunt for scale in a more tricky investment environment. Among the headline deals of the half was Deutsche Bank’s swoop on Investment bank Numis, a tie-up between brokers FinnCap and Cenkos, and Liontrust takeover bid for Swiss rival GAM.

Tom Groom, UK Financial Services Strategy and Transactions Leader at EY, said the figures did point to a rebound in appetite for deal-making “in the wake of the pandemic”. 

“However, economic headwinds at the start of the year – such as rising interest rates and inflationary pressures – caused many lenders to pull back from financing large deals, and the value of M&A activity is now less than half of where it stood during the same period last year,” Groom added. 

The number of non-UK firms acquiring UK targets increased to 35 in the first half of 2023 from 30 in the first half of 2022, but total value fell from £3.0bn to £0.2bn over the same period. As for UK firms acquiring overseas targets, deals dropped from 34 to 28, and from £4.9bn to £2.8bn. Within financial services sectors, specific M&A activity across insurance, banking, and wealth and asset management all mirrored the wider trend of greater volume and lesser value.

“The macroeconomic environment this year has undoubtedly impacted deal value, with a continued reduction in private equity involvement in particular”, said Groom. 

“However, the key drivers of M&A – being growth, innovation and synergies between businesses – remain, and as firms develop approaches to deliver M&A in this higher rate environment, we anticipate a return to higher deal values.”