2016 Financial Services M&A PredictionsRising to the challenge

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2016 Financial Services M&A PredictionsRising 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

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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 customers650

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)

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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 Payof UK adults with a smartphone by May 2015

76%

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Size matters

(Re)insurers are looking to consolidation to help break out of the vicious circle

they face – 2015 has seen in excess of

$100bn of 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. ReducedCat losses

4. Rate deflation

5. Regulatorycosts

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

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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

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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 surchargeFCA

EBA

RDR MiFIDPension reforms

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