How M&A is reshaping financial services in CEE with confidence

Financial services deal-making in Central and Eastern Europe (CEE) is back on track. The increase, in large part, is owing to high-value M&As across the banking and capital markets sector. The CEE M&A scene is not just active; it is a hive of strategic plotting and bold maneuvers. A key factor that favors M&A is banks that look to scale by reinforcing specific strengths while exiting countries that are non-profitable. As artificial intelligence (AI) and generative AI (GenAI) redefine work, the financial services sector is experiencing significant transformation. This technological shift along with substantial investments can enhance efficiency and lead to innovative offerings, shaping a confident outlook for the second half of 2024. Lower interest rates can further accelerate this growth, continuing the momentum into 2025 and beyond.

However, the specter of political upheavals and global tensions looms large, challenging financial institutions to factor these uncertainties into their strategies as they affect trade, monetary policy and the overall economic stability of the region. These considerations are pivotal to steer through risks and tap into new veins of opportunity

So far in 2024, domestic deals outnumbered inbound and outbound deals in terms of deal numbers as well as value. Overall, inbound deals exceed outbound ones, pointing toward a stronger inflow of investment into the CEE region from external firms than CEE-based firms expanding their investments externally. The 2025 Outlook: M&A Trends for Financial Services in CEE report offers a front-row seat to the unfolding drama of deals in the quest for scale and synergies.

Banking new deals for the future

M&A activity in the banking and capital markets sector in the first half of 2024 shows a decrease in deal volume — 13 deals, in all — compared with 16 during the same period in 2023. However, 2024 outshines in terms of disclosed deal value — better than all previous periods including the first half of 2022. Banks, especially those in the mid-tier, are locking arms to form more formidable entities, ready to take on the world with enhanced market clout and deepened sector expertise.

In 2025, the acquisition of tech-driven capabilities will continue to be a trend. Diversification is also on the agenda, with financial institutions casting wider nets to capture diverse income streams, turning to lucrative sectors like wealth management to strengthen their bottom lines. Additionally, the upsurge in European bank shares and profitability has reignited M&As across countries. In the near future, M&As will remain a strategy for boosting fee-based revenue for the sector.

Insurance: instilling the future with confidence

The insurance market is also pulsing with activity, boasting a 50% uptick in M&A deals (first half of 2024 versus the first half of 2023). The Managing General Agent (MGA) model is emerging as a game-changer, offering a fresh take on operational agility within a tightly regulated space. Consolidation in the broking sector is projected to continue thanks to strong and stable margins, fragmented markets, and strategies aimed at international expansion.

Small acquisitions at lower earnings generating deal volumes, acquisitions focused on the benefits of integration and acquisitions that lead to development and expansion of international platforms could guide future deals in the mature insurance brokerage markets. Tech innovation will persist as a key driver of strategic acquisitions, with deal activity being fueled by the transition to cloud computing. The strategic procurement of insurance technology (InsurTech) companies can help realize growth, enhancing operational efficiency while meeting the steep expectations of customers and regulators alike.

With continued focus on evolving technologies, cloud computing and InsurTech startups will become hot targets for acquisitions.

Wealth and asset management: investing for the future

In the first half of 2024, the wealth and assets management (WAM) sector in CEE faced a challenging landscape, with just four deals — lagging behind the banking and capital markets as well as insurance sectors in both deal volume and disclosed value.

The hurdles for the sector include high interest rates, inflation and shifting environmental, social and governance (ESG) regulations. Moreover, GenAI is prompting WAM firms to revamp their operations for better efficiency and client services. However, the optimism of declining interest rates could still catalyze growth. Firms should double down on financial literacy, embrace technology and attract top talent to secure a robust asset under management (AUM) growth trajectory. In all likelihood, technology-led acquisitions and a diversified approach to asset classes will become the norm for the future.

Private equity, with a keen eye on the wealth management and asset servicing arenas, is expected to catalyze further consolidation as smaller players grapple with the costs of staying competitive in a scale-driven market that favors the technologically savvy.