admin | 05.09.16

Disruption and Evolution: Financial Services M&A Trends to Watch

In the years following the financial crisis, the U.S. financial services industry has weathered a myriad of economic and regulatory challenges which negatively impacted performance, constricted liquidity and hampered deal activity. With continued economic improvement, technology enabling differentiation, and strengthening fundamentals across the financial services sector, deal activity has seen a continued upward trajectory through the end of 2015. In fact, financial services M&A activity reached its highest peak in 2015 compared to any point over the last 10 years.


There were a total of 1,267 financial services deals in 2015, with an announced deal value of $264 billion. The number of deals with a value over $1 billion (i.e., “mega-deals”) also reached a peak in 2015, with 35 deals representing $233 billion or 88% of total announced deal value.
• Although there has been a marked increase in the pace of banking deals since the financial crisis, (excluding government-assisted transactions), recent deal activity remains somewhat flat. There were 285 deals in 2015 representing $27 billion of announced deal value. While five mega-deals accounted for $14 billion or 54% of announced deal value, the majority of transactions related to consolidation amongst banks with less than $1 billion in assets.
• There were 331 deals in 2015 in the other (non-bank) financial services sector, with an announced deal value of $91 billion. This includes a record 19 mega-deals representing $79 billion or 87% of the total announced deal value. Financial technology and specialty finance transactions dominated this segment, representing a total of 259 deals and 86% of the total announced deal value in 2015. Pervasive and continued advancements in technology will drive substantial growth in financial technology deals, spanning the financial services spectrum. Expect sustained mid- to high-teen deal multiples for innovative firms with a proven track record of high quality growth.
• Insurance represented the most active financial services subsector, with 521 transactions representing an announced deal value of $143 billion. While 451 insurance brokerage deals represented 87% of insurance deal volume, they only accounted for around 2% or $3 billion of announced deal value. Insurance underwriter acquisitions by strategic acquirers accounted for the lion’s share of announced deal value.
• Asset management deal activity remains robust, with 130 deals in 2015, compared to 91 deals in the prior year. Average deal values for announced asset management deals, excluding mega-deals, appears to have declined from $108 million to $88 million over the same period. While deal activity remains strong, the decline in pricing likely reflects the impact of recent financial market volatility on valuations, narrowing the bid-ask spread between buyers and sellers.


Focused growth: A bigger role for private equity
Although private equity deal activity has tripled since its low point in 2009, financial services M&A remains dominated by corporate buyers. Corporates represented 1,169 deals with a disclosed deal value of $252 billion, compared to private equity investors, which represented 98 deals with a disclosed deal value of $12 billion. While corporates will likely continue to dominate larger, balance sheet-heavy deals in more-highly regulated subsectors, private equity firms will play an increasingly dominant role in deals involving commercial lenders, specialty finance companies, financial technology firms, insurance brokerage firms, and asset / wealth managers.
Of the 98 private equity deals announced in 2015, 48 related to insurance brokerage, 16 related to financial technology and six related to specialty finance transactions. These three subsectors accounted for over 71% of all private equity-backed deals in 2015. We believe these three subsectors will continue to represent the most significant areas for investment by private equity firms.
Continued improvement in the U.S. economy, characterized by sustained GDP growth, declining unemployment, historically low interest rates, lower energy prices and growing consumer confidence, gave buyers and sellers the confidence to push forward with deals in 2015. While recent financial market volatility and global economic concerns have tempered growth expectations in the near-term, we believe the pace of financial services deal activity will persist.
We believe the following key trends and themes will drive M&A activity across the financial services sector over the coming years:
• The impact of technology is pervasive, from the use of big data to understand customer behavior and improve underwriting, to driving new customer and asset acquisition. Growth in emerging collaborative technologies such as blockchain are already impacting recordkeeping and transaction processing capabilities across the financial services sector. Continuous disruption and disintermediation by technology-enabled market entrants will spur innovation and deal activity.
• Regulators will continue to play an integral role in the banking, insurance and consumer finance subsectors, intensifying their interactions with incumbents and new entrants. While uncertainty over the extent and nature of regulatory oversight remains, savvy investors will look through the regulatory white noise and seek to execute deals rather than wait on the sidelines for future clarity.
• The largest financial institutions will continue to divest non-core businesses while competing aggressively with new entrants for growth; expect growth in deal activity as incumbents seek to use their considerable capital to acquire knowledge and market share.
• Innovation and investment will be drawn towards business models that are scalable, highly data intensive and capital light.
• The proliferation of financial services offerings for the nonprime and underbanked segments will continue. Technology will increasingly enable more efficient and effective underwriting, streamlined processing and servicing, and disintermediation across the sector.
• Scale from consolidation will become critical for an increasingly commoditized financial services sector; growth from the realization of cost synergies and footprint / product expansion will continue to spur deal activity.
• Challenging organic growth opportunities and a historically low interest rate environment means new asset generation remains difficult. The inevitable, albeit measured increase in interest rates, will enhance lender profitability, increasing their attractiveness to investors.
• While historically less prevalent compared to other industries, expect activist investors to play an increasingly active role in driving M&A activity across the financial services spectrum.
The pivotal role of technology is giving rise to structural changes across the financial services sector. As the industry adapts and evolves, M&A activity will play a continued role in this growth story. Investors who understand the impact of key risks and drivers of deal value at the most granular level will be in a position to execute the most successful transactions. A robust and deeply analytical diligence process by sellers and buyers will be of critical importance to ensure that contingencies, synergies and risks are identified and quantified before the consummation of a potential transaction.
Source: Alvarez & Marsal –

admin | 05.03.16

Sell-Side Due Diligence and IPO Readiness

Completing a Sell-Side Due Diligence exercise prior to commencing a transaction process was once unheard of domestically. However, this has quickly become the norm rather than the exception. According to Hiter Harris, Managing Director and Co-Founder of Harris Williams, “Seller commissioned QofE reports have been routine in Europe for years but now are gaining frequency in the U.S.”

Sell-Side Due Diligence involves the preparation of a Company’s financial accounting, tax, human capital, and operational “story.” The processes and skills used by third party professionals when performing Sell-Side Due Diligence are very similar to those used during Buy-Side Due Diligence. However, a key difference is the benefit of time to prepare and full cooperation from company management, resulting in a more thorough and accurate assessment of the company being sold.

Areas of assessment include the quality of a company’s earnings, working capital requirements, tax structuring considerations, as well as human capital and operational considerations. The outcome of these procedures is often shared with prospective bidders and lenders. In other instances, the findings are used by the company as a tool to understand itself through the lens of prospective bidders and as a dry-run for the upcoming process.


Sell-Side Due Diligence has become accepted in the market because it benefits all participants in a transaction. From the seller’s perspective, it is a key tool in maximizing exit value and proactively getting in front of potential pitfalls. From the investment banker’s perspective, it is a driver for speed and process efficiency. For bidders, it is a chance to understand the prospective investment without investing an extraordinary amount of effort and expense. Bidders still ultimately perform their own diligence and engage their own third party professionals. However, when Sell-Side Due Diligence is performed correctly buyer’s diligence often becomes a confirmatory rather than exploratory exercise. Harris further comments, “It’s smart to take time to do this in many cases. Preparation is always a benefit.”

Sell-Side Due Diligence has been an important part of A&M’s growth. During FY15, the volume of sell-side projects completed by A&M increased by 135% over the prior year. A&M’s growth in this area has not only been domestic. A&M’s Transaction Advisory Group is global. Its Europe, Asia, Latin America and India due diligence teams have experienced increased demand for Vendor Due Diligence (VDD) services. Those teams have extensive experience in providing Vendor Due Diligence services and thoroughly understand the VDD process.

Planning a public exit? No problem. A&M’s Capital Markets and Accounting Advisory team can help. An early assessment of the company’s ability to operate as a public company will ensure that it is prepared to launch when the timing is right. Unrestricted by audit-based conflicts, our team provides dedicated, hands-on resources throughout the IPO process – working with management, its auditors and attorneys to ensure quality, timely results.

A&M’s Keys to Success are its focus on quality, senior-level involvement, speed, and flexibility in approach. Following a successful exit process, A&M is regularly sought out for new exit opportunities by bidders and intermediaries who witnessed and experienced A&M’s approach. Time and time again, the quality and consistency of the team, speed and efficiency of the process, and overall, lack of subsequent surprises is what has made A&M a global leader in the space.

admin | 05.02.16

Ten Years in Software & Technology M&A

In the last 10 years, the software & technology space has grown on its own in the pure play tech space, as well as for companies in regulated sectors where hi-tech solutions are addressing rapid change – particularly in health care information technology (HCIT), financial services technology (Fintech), and security.
Healthcare-related software companies in particular have driven substantial growth in the space. This was driven in part by the demands of adhering to new regulations, especially those instituted as a result of the Affordable Care Act. In addition, HC insurance companies have been slow to adopt technologies to improve efficiencies. Pushed in part by the ACA regulations, large insurers are buying up software companies to quickly ramp up to 21st century technological solutions.


Financial technology companies – have transformed how B-to-B and B-to-C transactions take place. Think Apple Pay, Square and Pay Pal. In the last several years, the demand for “payment processes” has driven phenomenal growth. Business and consumers want to transact securely online.
Furthermore, the need to mitigate the risk of being hacked, in light of several high profile global security breaches at companies around the globe, has led to an increased investment in tech security companies. In particular, companies offering “endpoint and perimeter cybersecurity solutions– solutions that seek to prevent attacks at the point of network access – are numerous. Consolidation of these companies offers a ripe opportunity for tech investors (“Deal Drivers Americas 2015”, Merger Market, 2015).
In today’s ever-competitive environment with multi-round auctions and accelerated timeframes, it has become increasingly more critical to have the right industry expertise. Our dedicated team of seasoned S&T professionals collectively looks at over 100 software and technology companies each year. With our extensive experience and know-how, we can quickly analyze key value drivers and help you assess and validate your investment thesis early in the process.