This year’s Financial Services M&A Predictions report explores the key drivers of M&A activity going forward, specifically market disruption and technology; consolidation and growth; and regulatory change. Looking at recent M&A activity, the report predicts how these trends will impact M&A across the whole spectrum of financial services in 2016.

1. 2016 Financial Services
M&A Predictions
Rising to the challenge

2. 2016 Financial Services M&A Predictions
Rising to the challenge
Over the course of 2015
we have seen 3 key trends
that we expect to continue
during 2016 and drive
M&A activity
Financial Services Industry
M&A announced by
Q3 2015
£265.1bn

3. Market disruption
The use of technology to
anticipate or avoid loss events
has the potential to disrupt the
general insurance market
In the investment management
sector direct to consumer digital
channels are growing rapidly whilst
‘robo’ advice offerings aim to
commoditise higher value services
Health
Home
Motor
42%
22%
33%
16%
35%
29%
25-34 All customers
650
150250
IFAs (F2F)
High end
wealth and
banks (F2F)
D2C
Proportion of customers who would like a service that detects
potential issues or problems and provides assistance, by age
UK retail assets under management
by channel, 2014 (£bn)

4. Market disruption
Internet and mobile phone
penetration has transformed
consumer financial activity and
is driving the uptake of new
banking services such as peer
to peer lending and new
payment products such
as Apple Pay
of UK adults with
a smartphone
by May 2015
76%

5. Size matters
(Re)insurers are looking to consolidation
to help break out of the vicious circle
they face – 2015 has seen in excess of
$100bnof deals in the
global (re)insurance industry
Global financial
crisis
(Re)
insurers
6. Low global
economic
growth
2. Alternative
capital
1. Low interest
rate environment
3. Reduced
Cat losses
4. Rate
deflation
5. Regulatory
costs
Investment management sub-sectors
such as wealth managers, distributors
and platforms are experiencing
consolidation driven by:
• Consolidation of the long tail of
wealth managers with less than
£5bn of AUM in the UK
• Interest from private equity
and larger financial institutions
• Strategic impacts of margin
pressure and increased fee
transparency

6. Size matters
Challenger banks have outperformed
the incumbents on a RoTE basis making
them attractive acquisition targets, with
purchasers either being other challengers
or foreign owned banks looking for a
foothold in the UK
14.3%Average RoTE for
challenger banks
in FY14 compared
to an average of
0.8% for
incumbents

7. Regulation
Capital shortfall against EBA risk based requirements
and leverage ratio at September 2015
€29.2bn
New regulations are expected to force
Financial Services institutions to re-evaluate
their business models, plans and balance
sheets to make sure they are in the best
possible position to deal with these
changes and take advantage of the
opportunities presentedBasel III
CRD IV
Section 166
SII
IFRS 9
Banking surcharge
FCA
EBA
RDR MiFID
Pension reforms

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