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Banking and capital markets focused on M&A for growth

Global Capital Confidence Barometer | Banking & Capital Markets | 18th edition

Data analytics and artificial intelligence (AI) drive portfolio transformation as banking and capital markets companies pursue growth

Our 2018 M&A survey, Global Capital Confidence Barometer, finds a banking and capital markets (BCM) sector firmly focused on growth.

Global banking M&A volumes and values fell by 16% and 34%, respectively, in 2017. However, our data points to a solid first quarter of dealmaking in 2018 with signs of strength in mid-market M&A, as well as in the payments and FinTech segments. The outlook remains healthy, with 45% of BCM executives surveyed expecting to actively pursue acquisitions in the next 12 months — above the long-term average.

The industry is turning to M&A to fuel growth

After many years of focusing on regulatory compliance and reshaping their business models, banks are now firmly focused on growth. Increased levels of confidence in future earnings and short-term market stability and better targeting are leading to larger deal pipelines. However, executives are holding firm on discipline, with 65% citing competition from other buyers or disagreement on price as the primary reason to have canceled a planned deal. Read EY’s Global M&A themes 2018 for more insight on M&A drivers in the banking and capital markets across the Americas, Europe and Asia-Pacific.

Portfolio transformation and the quest for digital skills driving deal activity

Almost two-thirds (62%) of respondents see portfolio transformation as the top priority on the boardroom agenda, as BCM companies look to become more agile, alert to new opportunities and quickly responsive to a fast-moving market environment. Banks are increasingly using data analytics and artificial intelligence (AI) to make more informed decisions about their portfolios.

Disruption is being tackled head on

BCM executives are on the front foot in the face of disruption, with 33% having identified an asset at risk of disruption to divest during their most recent portfolio review. Read our Financial services: Global Corporate Divestment Study 2018 for more detail on how companies are refocusing their portfolios to address emerging technologies and digital transformation.

Market outlook

Looking ahead, almost all (97%) BCM respondents see the global M&A market as either stable or improving. Record levels of dry powder could also fuel increased activity in the broader BCM sector by PE acquirers. We expect to see increased PE investment in banking infrastructure, consumer lending, payments and nonperforming loans. Meanwhile, shareholder activism will continue to be a factor for boardrooms and is set to become more prevalent in Asia and Europe.