A significant part of the M&A transaction activity in the Baltics last year measured by volume was generated by the financial services sector. The Polish insurer PZU acquired the RSA Insurance Group operations in the region while a group of investors led by Ripplewood Advisors took controlling interest in Citadele Banka AS, to name but a few. Both deals can be used to illustrate some of the prevailing European financial services M&A market trends last year - growth-seeking firms picking up sub-optimal size and non-core operations of their peers in intra-European transactions and financial buyers pushing into the financial services sector.
According to a recent report (a full version of which is available here) by PricewaterhouseCoopers, a consultancy, the volume of financial services M&A transactions in Europe in 2014 amounted to EUR 51.2 billion, a 21% reduction compared to 2014 (EUR 64.9 billion). The market saw a continued decrease in domestic transaction value that had been significantly inflated as a result of government-financed bailouts in the prior years.
While the 20 largest deals fall in the range from EUR 550 million to EUR 7 billion, there has been a strong and steady growth in mid-market transactions with 77 deals being in the range from EUR 100 million to EUR 1 billion.
In addition to the European cross-border deal-making, there has been a marked increase in the number of inbound M&A deals which were driven not only by the non-EU strategic buyers but also by the strong and growing interest from financial investors. Actually, the volume of deals involving private equity sponsors more than doubled reaching EUR 12.7 billion, with a significant increase in the average deal value as well – to EUR 79 million from EUR 50 million the year before. With the UK, not surprisingly, leading in private equity activity, two transactions in excess of EUR 2 billion were also recorded in Scandinavia – the acquisition of Danish Nets Holding, a payments, cards and information services provider, by Advent, Bain and ATP, and the acquisition of Norwegian Lindorff, a debt collection company, by Nordic Capital.
The above is another confirmation of the strong preference the private equity investors are having for businesses with strong, steady and predictable cash flows offered by payment services, debt recovery, transaction banking and consumer lending. Another attraction for the private equity buyers is that these businesses have comparatively low regulatory requirements for capital.
The report concludes that, in the environment of low interest rates and availability of debt, the private equity buyers are expected to be one of the main drivers for financial services M&A in 2015.
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