Strategically, TSAs are highly relevant for the consideration of potential buyers as they support execution certainty and speed. This is particularly the case for the higher proportion of banks that emphasize transaction speed over value (28%, compared with 16% in insurance and 17% in WAM).
Buyers that can demonstrate migration expertise and that have a target technology platform already in place with limited product gaps to address are particularly attractive. This includes PE bidders, who may be able to integrate the divested entity into an existing portfolio company.
Exploring the potential of ecosystem alliances
As part of their ongoing portfolio review, which the pandemic has only accelerated, banks are focusing heavily on leveraging strategic alliances to improve their service in every area of banking.
More banks should now look to ecosystem approaches. These involve engaging with software companies, FinTechs and other collaborators to innovate and raise margins while reducing costs. These arrangements bring a host of benefits, including strategic clarity over enhancing the portfolio, as well as accelerated speed to market, access to innovative technologies and a level of scale that they could not achieve alone.
The sector appears receptive to this kind of collaboration. The vast majority (86%) of EY CCB respondents report being open to forming alliances with competitors to create new ecosystem solutions.
In the recent past, several banking groups have entered into alliances with technology players to co-innovate new products and services with startups and FinTechs or to jointly expand into the banking-as-a-service (BaaS) space.
Further examples exist across a range of banking product areas and types of collaboration — from mortgage lending to wealth management.
- Tighten portfolio review criteria further to help identify potential divestments that could help lift cost-income ratios — particularly portfolio businesses that lack sustainable long-term cost transformation potential
- Explore ecosystem collaborations as an innovative route to improving service and increasing growth
- Treat TSAs as a powerful tool for managing the buyer pool
Overall, the need for both strategically transforming costs and freeing up capital for digital and technology investments and the drive towards greater ecosystem collaborations are acting as powerful catalysts for BCM companies to revisit their portfolio review criteria. These drivers should lead to increased divestment activity in the sector over the next 12 months.