Sharing deal insight - PwC · PwC Sharing deal insight 5 2009 to €46bn in 2010. This small but welcome increase gives some reason to hope that 2009 marked the bottom of the cycle

Sharing deal insightEuropean Financial Services M&A news and views

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Contents

03 Welcome

04 Data Analysis

10 Capitalising on a resurgentinsurance deal market

14 UK mid-market deal activitygathers pace

16 Looking Ahead

18 Methodology

€46bnof private sector financial services deals inEurope in 2010, up 12% from 2009

€26bnof private sector banking deals in 2010,compared with €11bn in 2009

The final quarter of 2010 was a relativelyquiet one for M&A, though we believethat the longer term trend is still upwards.An overview of 2010 as a whole highlightsthe reduction in government-ledtransactions and a marked increasein private sector activity, as the focus ofM&A shifted from crisis management tostrategic growth. Important signs of thismore buoyant environment were thegrowth in cross-border investment andprivate equity interest (see ‘DataAnalysis’).

While it may be some time before we see areturn to the pre-crisis M&A values in theEuropean insurance industry, dealappetite is returning. Rising financialasset values have given boards greaterconfidence and balance sheet flexibility.Finance is also more readily available andthe price expectations of sellers andbuyers are moving closer into line, whichis helping to bring more acquisitions tofruition (see ‘Capitalising on aresurgent insurance deal market’).

The increase in mid-size deals in the UK(transaction values of €50m–€150m) wasone of the key M&A trends of 2010 and is

set to continue in 2011. A notable featureof this activity is the high level ofinvestment from abroad, as internationalgroups look to extend their footprint inthe UK or gain access to the specialistexpertise that has been built up withinmany mid-size UK financial servicesfirms (see ‘UK mid-market deal activitygathers pace’).

The results from our annual survey ofthe prospects for financial services M&Apoint to a strong rise in transactionactivity in 2011. It is especially notablethat more than 80% of participantsbelieve that appetite for large deals isgrowing. New regulation is set to providefurther impetus for restructuring anddisposal of non-core businesses. This willin turn create fresh acquisitionopportunities for companies looking tobuild scale and extend their market reach(see ‘Looking Ahead’).

We hope that you find this edition ofSharing Deal Insight interesting. Pleasedo not hesitate to contact either of us orany of the article authors if you have anycomments or questions.

WelcomeWelcome to the first edition of SharingDeal Insight for 2011.

Nick PagePwC (UK)[email protected]

Fredrik JohanssonPwC (UK)[email protected]

The quarterly report aims to provide perspectives on the recent trends and future developments in the Europeanfinancial services M&A market, including analysis of the latest transactions and insights into emerginginvestment opportunities.

PwC Sharing deal insight 3

European financial services M&A hasfollowed a similar path to global dealactivity. Deal values reached a high pointover the summer but fell back sharply inthe fourth quarter, although positiveunderlying sentiment should bode wellfor 2011. This article analyses Europeanfinancial services M&A for the fourthquarter, but begins with a brief recap ofdeal activity for 2010 as a whole.

2010 saw Europeanfinancial services M&Adecline, but private sectordeals recoveredDuring 2010 total European financialservices M&A deal values fell from 2009’sfigure of €80bn to €50bn.1 This declinereflected a reduction in government-ledtransactions from the exceptional levelsseen in 2008 and 2009 (see Figure 1).Encouragingly, private sector financialservices deals increased from €41bn in

Data Analysis

2010 was a mixed year for global M&A. Hopes for a rebound in the first and second quarters of the year werethwarted by market volatility and the Greek debt crisis. Deals picked up fast over the summer, but cooled again inthe fourth quarter.

Figure 1: European FS M&A by value (€bn), 2003-2010

n Government activity n Deal values excl. Government activity

Source: PricewaterhouseCoopers analysis of mergermarket, Reuters and Dealogic data

250

200

150

100

50

020042003 2005 2006 2007 2008 2009 2010


1 The source data for the deals analysed in thispublication come from mergermarket, Reuters andDealogic, unless otherwise specified. Our analysismethodology is summarised on page 18.


2009 to €46bn in 2010. This small butwelcome increase gives some reason tohope that 2009 marked the bottom of thecycle for private sector financial servicesM&A in Europe.

Overall banking deal values fell from€49bn in 2009 to €30bn in 2010(see Figure 2), but given the degree ofgovernment-led transactions in 2009 thisis not a like-for-like comparison. Withgovernment activity stripped out, bankingdeal values increased from €11bn in 2009to €26bn as the restructuring processgathered pace across the sector. Insurancedeal values declined slightly from €12bnto €10bn during the year, while assetmanagement activity fell back to €8bnfrom the unusually high 2009 total of€15bn – a figure boosted by BlackRock’s€9.7bn acquisition of Barclays GlobalInvestors.

A review of 2010’s Top 20 deals (seeFigure 3 overleaf) shows that bankingrestructuring – in many forms – was thesingle biggest driver of M&A in 2010.The need to raise capital was a catalystfor many deals, but most sales alsorepresented an opportunity for buyers.Stronger banks built domestic scale anddeveloped new distribution avenues orareas of expertise.

Insurance companies and asset managerswere also targets of scale-buildingtransactions during the year, althoughlarge deals were comparatively few.Another feature of 2010 was theincreasingly influential role of privateequity firms in European financialservices M&A, partly due to lower publicsector activity and relatively subduedcorporate business. Private equity firmswere bidders in three of the year’s Top 20deals (see Figure 3 overleaf).

Figure 2: European FS M&A by value by sector (€bn), 2003-2010

n 2003 n 2004 n 2005 n 2006 n 2007 n 2008 n 2009 n 2010


160

140

120

80

100

40

60

20

0Banking Insurance Asset Management Other


Figure 3: Top 20 European FS deals by value, 2010

Month Target company Target country Bidder company Bidder country Deal Value (€m)

Sep Deutsche Postbank (70%) Germany Deutsche Bank AG Germany 3,882

Dec Allied Irish Banks (91%) Ireland Government of Ireland Ireland 3,818

Jun AXA SA (UK life and pensions) United Kingdom Resolution Limited United Kingdom 3,330

Sep Bank Zachodni WBK (70%) Poland Banco Santander SA Spain 3,088

Aug RBS Global Merchant Services United Kingdom Advent International Corp; USA 2,290Bain Capital Inc

Aug Royal Bank of Scotland – United Kingdom Banco Santander SA Spain 1,992318 UK branches

May KBL European Private Bankers SA Luxembourg The Hinduja Group India 1,350

Mar BNP Paribas Luxembourg SA Luxembourg BGL BNP Paribas Luxembourg 1,339(47%)

Feb RBS Sempra Commodities LLP United Kingdom JPMorgan Chase & Co USA 1,235(European and Asian operations)

Oct Bluebay Asset Management United Kingdom Royal Bank of Canada Canada 1,114

Oct Brit Insurance Holdings United Kingdom Achilles Group Netherlands 965(Apollo Management/CVCCapital Partners)

Jul Societe Marseillaise de Credit SA France Societe Generale France 872

Jul KBC – Bonds & Equity Derivatives Belgium Daiwa Securities Japan 797

Feb Cassa di Risparmio della Spezia Italy Credit Agricole France 740(80%)

Jun Banco Guipuzcoano Spain Banco de Sabadell SA Spain 734

Sep FIH Erhvervsbank A/S Denmark ATP; PFA Pension; Denmark 671Folksamgruppen; CP Dyvig & Co A/S

Apr Citibank International plc Sweden Marginalen AB Sweden 640(Swedish operations)

Feb Pantheon Ventures Limited United Kingdom Affiliated Managers Group Inc USA 564

Jul SEB AG – German retail Germany Banco Santander SA Spain 555banking operations

Jan Atradius Group (36%) Germany Grupo Catalana Occidente SA; Spain 537INOC SA

Sub-total 30,513

Other 19,778

Grand total 50,291



The fourth quarter of 2010was marked by a slowdownin European financialservices deal activityThe value of European financial servicesdeal activity in the fourth quarter was€9.5bn, a 55% decline from the €21.2bnrecorded in the third quarter2 and 35%lower than the €14.7bn seen in the fourthquarter of 2009. The quarter saw a fall inthe number of large deals and a furtherdecline in the value of small and mid-market transactions (see Figure 4),although activity in some markets wasmore buoyant (see ‘UK mid-market dealactivity gathers pace’). Quarter-on-quarter, the total number of deals fell to253 from 391.

A slowdown in reported banking dealsand sales of equity stakes was the singlelargest factor behind the decrease indisclosed deal values seen during thefourth quarter (see Figure 5). It wasalso notable that the nationalisation ofAllied Irish Bank (€3.8bn) represented70% of the quarter’s disclosed bankingdeal value; without this transaction,quarterly banking deal values would havetotalled less than €2bn for the first timesince 2003.

Despite the suddenness of the decline inannounced deal values towards the endof 2010, we see little to suggest that thisquarter-on-quarter slowdown will changethe positive trend of increasing M&Aactivity. There is no reason to think thatEuropean banking restructuring will stopwith the process only part-completed,and it is worth noting that the most recentCBI/PwC Financial Services Surveyrecorded a seventh consecutive quarter ofimproving sentiment among UK firms.3

The total values of insurance and assetmanagement deal activity declinedslightly during the quarter (see Figure 5),but in both cases October produced alarge, notable deal announcement. RoyalBank of Canada’s purchase of BlueBayAsset Management for €1.1bn should giveit the chance to expand its asset

management business significantlyin Europe, while Achilles’ plannedacquisition of Brit Insurance for €965mwas the second large deal in 2010 to seetwo private equity firms joining forces(see ‘Capitalising on a resurgentinsurance deal market’). In this case thetwo firms were Apollo Management andCVC Capital Partners; in the first, Adventand Bain joined forces to purchase RoyalBank of Scotland’s WorldPay businessfor €2.3bn.

Figure 5: European FS M&A by value (€bn), analysed by sub-sector, Q1–Q4 2010

n Asset Management n Banking n Insurance n Other


16

14

12

10

8

6

4

2

0Q1 10 Q2 10 Q3 10 Q4 10

Figure 4: European FS M&A by value (€bn), Q1–Q4 2010


25

15

20

10

5

0Q1 10 Q2 10 Q3 10 Q4 10

2 Note: The figure of €21.2bn for the third quarter of2010 differs from the figure of €16.8bn published inthe November 2010 edition of Sharing Deal Insight.Deal data for the first three quarters of 2010 hasbeen updated to exclude transactions that havecollapsed, and to include deal values that werepreviously undisclosed. The largest deals to havebeen added to our 2010 dataset in this way areDaiwa’s acquisition of KBC’s Bond & EquityDerivatives business (€797m) and Credit Agricole’sacquisition of 80% of Cassa di Risparmio dellaSpezia from Intesa Sanpaolo (€740m).

3 ‘Industry Sentiment – Financial Services Survey’,PwC, 10.01.11.

1. €1.3bn BNP ParibasLuxembourg SA (47%)

2. €1.2bn RBS SempraCommodities LLP (Europeanand Asian operations)

1. €3.9bn Deutsche Postbank AG (70%) 2. €3.1bn Bank Zachodni WBK SA 3. €2.3bn Royal Bank of Scotland Group plc (Global Merchant Services)4. €2bn Royal Bank of Scotland Group (318 UK branches)

1. €3.3bn AXA SA (UK lifeand pensions businesses)

2. €1.4bn KBL EuropeanPrivate Bankers S.A

1. €3.8bn Allied Irish Banksplc (91%)

2. €1.1bn Bluebay AssetManagement Plc

During the fourth quarter, deal valuesfell across all sectors.


With corporate-driven M&A values fallingfast in the fourth quarter, government-ledactivity was a large component of totaldeal value for the first time in 2010 (seeFigure 6). Although private equity dealvalue fell in absolute terms, it retained arelative degree of importance.

Despite RBC’s €1.1bn acquisition ofBlueBay – the quarter’s largest cross-border deal – total cross-border valuesfell from €10.9bn in the third quarter4

(a 52% share of the overall total) to just€2.4bn, a 25% share of total deal value(see Figure 7).

Four of the remaining seven Top 10 dealsof the fourth quarter (see Figure 8) weredomestic banking transactions:

• In Russia, VTB Bank agreed to acquirea controlling stake in TransCreditBankfrom Russian Railways for €517m, andMoscow-based NOMOS-BANK offered

€296m for a majority stake in Khanty-Mansiysk Bank, based in the Siberiancity of the same name;

• In Italy, savings bank, Banca Tercasannounced its intention to acquire acontrolling stake in local rival BancaCaripe for €228m, and Intesa Sanpaoloagreed to acquire 51% of Banca MonteParma for €159m.

The remainder of the Top 10 announceddeals of the fourth quarter were:

• MasterCard’s purchase of Travelex’spre-paid Card Program Managementbusiness for €346m – its second deal of2010 involving a UK-based paymentspecialist;

• Aegon’s acquisition of 50% ofCaixaSabadell Vida of Spain for€211m; and

• The acquisition of Bupa HealthAssurance by consolidation vehicleResolution for €188m, a follow-up tothe purchase of AXA’s UK life businessfor €3.3bn, announced in June 2010.

As already discussed, the fourth quarterof 2010 saw relatively few small and mid-market financial services deals. Even so, afew features that caught our eye furtherdown the dataset were:

• A handful of inward Europeanpurchases by US and Indian companies;

• A number of small bank restructuringdeals, including several in Italy,Scandinavia and Poland; and

• Several deals involving consumercredit, pawn broking and debtcollection companies.

Figure 7: European FS M&A by value (€bn), domestic v cross-border, Q1–Q4 2010

n Domestic n Cross border


25

20

15

10

5

0Q1 10 Q2 10 Q3 10 Q4 10

Figure 6: European FS M&A by value (€bn), analysed between Corporate,Government and Private Equity activity, Q1–Q4 2010

n Corporate n Government n PE


18

16

14

12

10

8

6

4

2

0

Q1 10 Q2 10 Q3 10 Q4 10

4 See footnote 2 regarding updated deal data.

To recap, we do not believe that thefourth quarter’s decline in Europeanfinancial services deal values is a sign thatthe growing momentum of private sectordeal-making seen in 2010 is coming to an

end. In ‘Looking Ahead’ we consider howbanking restructuring and other driversof deal activity may develop during theyear ahead.


Figure 8: Top 10 European FS deals by value, Q4 2010

Month Target company Target country Bidder company Bidder country Deal Value (€m)

Dec Allied Irish Banks (91%) Ireland Government of Ireland Ireland 3,818

Oct Bluebay Asset Management United Kingdom Royal Bank of Canada Canada 1,114

Oct Brit Insurance Holdings United Kingdom Achilles Group Netherlands 965(Apollo Management/CVCCapital Partners)

Dec TransCreditBank OJSC (43%) Russia VTB Bank JSC Russia 517

Dec Travelex Card Program United Kingdom MasterCard United States 346Management

Dec JSC Khanty-Mansiysk Bank (51%) Russia NOMOS Bank Russia 296

Oct Banca Caripe (95%) Italy Banca Tercas Italy 228

Nov Caixa Sabadell Vida (50%); Spain Aegon NV Netherlands 211Caixa Sabadell Companyiad'Assegurances Generals (50%)

Oct Bupa Health Assurance Limited United Kingdom Resolution Limited United Kingdom 188

Oct Banca Monte Parma (51%) Italy Intesa Sanpaolo Italy 159

Sub-total 7,842

Other 1,617

Grand total 9,459



As with other financial services sectors,strategic M&A activity within theinsurance industry went into significantdecline in the immediate aftermath of thefinancial crisis. Of the some €80bn oflarge European financial services deals(over €2bn) completed in 2009, only 14%related to the insurance sector and nonefeatured in the top 20. This is a fraction ofthe €45bn of insurance transactionscarried out during 2007.

With economies in recession and balancesheets depleted in the wake of thefinancial crisis, management were keen toavoid any activity, particularly M&A,which might threaten or createuncertainty over capital positions. Even ifopportunities were targeted, many dealsfell at the first hurdle due to lack ofavailable funding, which was oftencompounded by a mismatch between thepricing expectations of buyers and sellers.

Activity continued to be limited throughthe first half of 2010 (insurance dealvalues fell by €3bn to €9bn for the yearoverall). In the second half of the year,however, momentum began to gatheragain. Consolidation vehicle ResolutionPlc’s €3.3bn takeover of AXA’s UK life andpension subsidiaries in June 2010 was insome respects a turning point (see Figure

1). Announcing the takeover in June2010, John Tiner, CEO of Resolution Plc,said: ‘We see a strong pipeline of potentialfurther consolidation steps.’5 Resolutionfollowed up the AXA deal with the €188macquisition of BUPA Health Assurance inOctober 2010.6

So why is M&A back on the agenda?Rising financial asset values have givenboards greater confidence and balancesheet flexibility. In turn, finance is nowmore readily available. This includesrenewed opportunities for leverageddeals, which are attracting fresh interestfrom private equity firms. Finally, theprice expectations of sellers and buyersare now moving closer into line. Recentactivity includes the takeover of BritInsurance by Achilles, a private equityconsortium formed by Apollo GlobalManagement and CVC Capital Partners.Achilles’ initial offer of £10 per share inJune 2010, which valued the company at£785m, was rejected.7 The partieseventually agreed on a valuation of £11per share in October, which valued thecompany at £888m.8 The agreementrepresented a premium of nearly 50% onthe share price when Achilles made itsinitial offer.9

Capitalising on a resurgentinsurance deal market

James TyePwC (UK)[email protected]

M&A in the European insurance industry is once again building up a head of steam, as companies refocus onstrategic growth and look to consolidation to enhance competitive scale, and greater access to finance and morerealistic pricing make deals more realisable.

5 Daily Telegraph, 24.06.10.


7 Offer Document and Position Statement,published by Brit Insurance on 23.11.10 andDaily Telegraph, 11.06.10.

8 Offer Document and Position Statement,published by Brit Insurance on 23.11.10.

9 Offer Document and Position Statement,published by Brit Insurance on 23.11.10 andDaily Telegraph, 11.06.10.


Building scaleConsolidation will help insurers to buildscale and sustain margins in a slow-growing and still generally fragmentedsector. The mutual sector will continue tobe a particular focus as firms struggle tocompete with larger, better resourcedand more diversified incorporatedcompetitors. In France, a spate of mergershas seen the number of mutuals falldramatically in recent years. Key dealsfinalised in 2010 include the union ofMatmut, Maif and Macif, with the mergedgroup becoming the market leader invehicle insurance.10 As we examined in anarticle last year, Solvency II looks set toreinforce the pressure for consolidationamong smaller and monoline insurers.In particular, many will seek mergers tohelp diversify their risks and so reducetheir capital requirements (see ‘Wakingup to new realities – The impact ofSolvency II on strategy and M&A activityin the insurance industry’ in our February2010 edition).

Significant future M&A opportunitiesinclude the insurance arms of ING andthe Royal Bank of Scotland (RBS), whichneed to be divested following agreementswith the European Commission over statefunding.11 ING’s European insurancebusiness is particularly sizeable,combining significant operations in theBenelux with strong growth positions ina number of developing Southern andEastern European markets. In November2010, ING’s Board announced that itwould be exploring the option of aseparate IPO for its US and Europeaninsurance businesses.12 RBS Insurance isa UK-focused business which bringstogether some of the country’s leadingbrands including Churchill and DirectLine. RBS Insurance had previously beenthe subject of an unsuccessful auction.However, the uplift in bid prices and morepositive market sentiment seen in 2010suggest that a more successful outcomemay be possible when RBS Insuranceeventually comes back on to the market.

Figure 1: Top ten European insurance deals in 2010

Month Target company Acquirer company Deal Value (€m)

Jun AXA SA (UK life and pensions businesses) Resolution Plc 3,330

Oct BRIT Insurance Holdings N.V (formerly BRIT Insurance Holdings Plc) Achilles 965

Jan Atradius Group (36% stake) Grupo Catalana Occidente SA; INOC SA 537

May Ascat Seguros Generales (50% stake); Ascat Vida (50% stake) Mapfre SA 447

Aug Nykredit Forsikring A/S Gjensidige Forsikring BA 336

May Secura NV QBE Insurance Group Ltd 267

Jul Kwik Fit Insurance Services Fortis (UK) Limited 260

Jun Fiba Sigorta AS Sompo Japan Insurance Inc 253

Sep Alba Allgemeine Versicherungs-Gesellschaft AG; Helvetia Group 230Phenix Lebensversicherungsgesellschaft AG;Phenix Versicherungsgesellschaft AG

Feb Aegon NabestaandenZorg NV Egeria BV 212

Source: mergermarket, Reuters and Dealogic

Significant future M&A opportunities includethe insurance arms of ING and the Royal Bankof Scotland (RBS), which need to be divestedfollowing agreements with the EuropeanCommission over state funding.

10 Libération, 24.03.09.

11 ING media release, 26.10.09 and RBS GeneralMeeting Statement, 15.12.09.

12 ING media release, 10.11.10.


Growth opportunitiesAs insurers look to offset stalling growthin mature home markets, there is likely tobe renewed focus on the relatively under-penetrated South Eastern Europeanmarkets. The Turkish life insurance sectorcould prove especially attractive, withincreased demand for pensions and termlife products fuelling growth of more than7% in 2009. With premiums making upjust 1.3% of GDP in Turkey, the lowestrate in Europe, the potential for furthermarket expansion is evident (thiscompares to 3.8% in Poland and 10.3% inFrance).13 Notable deals in 2010 includedVienna Insurance Group’s (VIG) takeoverof TBIH, a Dutch business with insuranceoperations in Turkey, Georgia and theUkraine.14 VIG subsequently reaffirmedits commitment to cross-border expansionwith the acquisition of InterAlbanian,which has made the Austrian group thelargest vehicle insurer in Albania.15

Making the right dealDeal evaluation will centre on a numberof key factors. First and foremost isevidence of an effective management andunderwriting team, which is able todeliver consistently strong returns. It’sequally important to develop a clearunderstanding of the risk profile of thetarget company and how both its capitalposition and that of the acquirer will beaffected by Solvency II. The directive willraise capital requirements and heightenthe market focus on certain high riskproducts. On the upside, smart buyerswill have opportunities to apply moreeffective capital management techniquesto companies that may currently beoperating with relatively inefficientstructures.

UK leads the wayWith the two largest European insurance deals in 2010 (the takeovers of Brit and AXA’s UK lifeinsurance businesses), the UK is setting the pace for M&A. Figure 2 sets out the top five deals in theUK in 2010. The popularity of price comparison sites has driven down premiums and added to thepressure to either consolidate or buy intermediaries to help sustain margins. Further impetus foracquisitive growth comes from the fact that the market capitalisation of the biggest UK insurers,Prudential (€19bn) and Aviva (€14bn), is still dwarfed by the giants of European insurance, Allianz(€45bn), AXA (€35bn) and Generali (€24bn).16 Some groups may also be looking to switch theirprimary focus to faster growing emerging markets, which may open up divestment opportunities athome. Prudential’s global ambitions were highlighted by its €25bn bid for AIA.17 A further focus isthe London Market, with a number of companies attracting interest from both within the market andabroad. As the Brit takeover highlights, potential buyers include private equity firms (the bulk ofBrit’s ongoing business comes from its Lloyd’s operations18). Other mooted deals have includedBeazley’s bid for smaller rival Hardy Underwriting.19

13 World Insurance in 2009, published bySwiss Re Sigma on 29.06.10.

14 VIG media release, 23.07.10.

15 VIG media release, 06.12.10.

16 Valuations as of 03.02.11 (Reuters).


18 Brit Insurance group fact sheet, as at 31.12.09.


Figure 2: Top five deals in the UK in 2010

No Month Target company Acquirer company Deal Value (€m)

1 Jun AXA SA (UK life and pensions businesses) Resolution Plc 3,330

2 Oct BRIT Insurance Holdings N.V (formerly BRIT Insurance Holdings Plc) Achilles 965

3 Jul Kwik Fit Insurance Services Fortis (UK) Limited 260

4 Oct Bupa Health Assurance Limited Resolution Plc 188

5 May Standard Life Healthcare Limited Discovery Holdings Limited 163



Editorial eyeWhile it may be some time before we see a return to the pre-crisisM&A levels in the European insurance industry, deal appetite isreturning. The strong underlying rationale for consolidation canonly increase in Western European markets that are fragmentedand struggling to sustain growth. In turn, a greater meeting ofminds between buyers and sellers on pricing is helping to bringmore acquisitions to fruition. However, investors will have nohesitation about pulling the plug on any deal they believe isover-priced. They also want assurance that the target’s risksand the balance sheet impact are understood and factored intothe bid.

As insurers look to offset stalling growth inmature home markets, there is likely to berenewed focus on the relatively under-penetrated South Eastern European markets.


There were just a handful of financialservices acquisitions worth more than abillion euros in the UK in 2010. Awayfrom the headlines, in the mid-marketdeal arena (transaction value of€50m–€150m), activity was much morebuoyant. As Figure 1 highlights, theleading deals in this area of the marketspan broking, insurance, assetmanagement and fast growth nichesegments. A high proportion of the buyershave come from overseas.

Consolidation has been a key factor ascompanies look to build scale and extendtheir market reach. Deal appetite is

growing as confidence improves andaccess to finance increases. In turn, therange of targets on offer has beenbolstered by the divestment of non-coreassets by larger corporations.

The acquisition of certain parts of RBSAsset Management by Aberdeen AssetManagement in January 2010encapsulates a number of the trends thathave been propelling the growingmomentum in the mid-market. Buildingon Aberdeen’s acquisition of £50bn ofassets under management (AUM) fromCredit Suisse in 2009, the RBS deal addeda further £13.5bn of AUM. The RBStransaction also provided entry intothe fund of hedge funds market and anopportunity to become exclusive providerof investment products to Coutts, RBS’private bank.20

Other targets that have come onto themarket as a result of rationalisation bylarger groups include Peel Hunt, theLondon stockbroking arm of Belgian bankKBC. Although the broker was thought tohave attracted interest from a number ofits peers, the company was eventuallysold to a management-led consortium.21

The purchase price of €89m is less thanhalf of the figure paid by KBC when itacquired Peel Hunt in 2000, highlightingthe reassessment of market valuesfollowing the financial crisis.

Inbound investmentRenewed interest from abroad is anotherkey feature of mid-market activity, asinternational groups look to build theirfootprint in the UK. One of the key drivers

for foreign acquisition within the brokingsector is a desire to gain access to thespecialist expertise and internationalreach that has been built up within manymid-size UK firms. Examples include thePortuguese Banco Espirito Santo’s (BES)purchase of a majority stake in brokerExecution Noble, which is part of BES’plan to develop a leading presence inemerging market investment banking.Key attractions of the deal for BES includeExecution Noble’s ‘critical mass indifferentiated emerging marketsincluding Brazil, India, Poland andincreasingly Africa,’ along with its ‘highlyrated Indian equity research product’.22

While just below the €50m threshold, thistrend can also be seen in Religare CapitalMarkets’ acquisition of the UK operationsof Barnard Jacobs Mellet, which is aimedat adding ‘market leading distribution andexecution for South African equities’ toReligare’s rapidly expanding emergingmarket franchise.23 The acquisition willalso enable Religare to extend itspresence in the UK, following its purchaseof UK Broker Hichens, Harrison in 2008.24

A number of niche areas are alsoattracting foreign interest, includingsub-prime lending. Examples includeUS-based Dollar Financial Corporation’sacquisition of Purpose UK, a companywhich provides short-term, small sumloans under the brand Payday UK.25 AsPwC’s latest Precious Plastic consumerfinance study highlights, small ticketlending is primed for further growth asfunding constraints put pressure onmainstream credit and increasingnumbers of consumers find themselves

UK mid-market deal activitygathers paceThe increase in UK mid-market deal activity is set to be one of the key M&A trends of 2011, as a combination ofgreater confidence and the growing impetus for consolidation spur renewed interest in acquisition.

Raymond HurleyPwC (UK)[email protected]

Salv NigrelliPwC (UK)[email protected]

Caroline NursePwC (UK)[email protected]


unable to access finance from traditionalsources.26 Further acquisition within sub-and near-prime lending could be on thecards as the segment adjusts to the post-crisis environment.

In turn, the past year has seen increasedprivate equity interest in mid-sizecompanies, especially the LondonInsurance Market. Examples includeUS-based Corsair Capital’s €111minvestment in Torus, a specialty insurer.A further €25m has come from FirstReserve Corporation, Torus’ majorityshareholder. ‘We are extremely pleased toreceive this endorsement of Torus fromCorsair, an experienced investor in thefinancial services industry with a longand successful track record of supportinghigh growth insurance companies,’ saidTorus Chief Executive Clive Tobin.27

Looking aheadLooking ahead to 2011, consolidationand inbound investment will continueto increase. Regulation will provide afurther catalyst for activity in a numberof sectors. As we outline in ‘Capitalisingon a resurgent insurance deal market’on pages 10–13, smaller and monolineinsurers may seek mergers to helpdiversify their risks and so reduce theircapital requirements under Solvency II.

The Retail Distribution Review (RDR) willprovide further impetus for consolidationamong independent financial advisorsand asset managers. As advisorremuneration moves to a fee basis, someIFAs may seek to join forces or buycompanies with specialist wealthmanagement expertise to broaden theiradvisory and service capabilities. Asgreater transparency and competition putfurther pressure on charges, assetmanagers may also look to offer morevalue-adding advice and services to make

up for potentially lower fee income.In turn, many IFAs and asset managerswill seek to improve economies of scalethrough acquisition to offset theincreasing cost of providing such advice and services, as well as potentially highercompliance costs (for more details of theimpact of the RDR please see ‘Regulatoryoverhaul in asset management set to driveM&A’ in our September edition).

Another focus of activity will be loanportfolios as banking groups look toimprove liquidity and de-risk theirbalance sheets in the lead up to Basel III.As the UK banking regulatory landscapecontinues to be reshaped, we expect tosee more mid-sized deals in loanportfolios and other non-core assets.

Realising deal valueThe evaluation principles and executionstrategies of M&A in the mid-market areno different to higher value deals,including effective due diligence andpost-merger integration. However,realising the value of mid-marketacquisition places a number of additionaldemands on the buyer. Smallercompanies are likely to have lessexperience of preparing for transactionsand therefore some of the key

information may not be readily available.It is therefore important to liaise closelywith the target company or seek outalternative sources of data and analysis.

The management team is also particularlycrucial to the success and value of thefirm. It is therefore important to discernwhether their continued presence is partof the deal and to build in appropriateincentives to encourage their supportand retention.

Editorial eyeThe mid-market has been one of the strongest areas of dealactivity over the past year and interest is set to increase stillfurther in 2011. Consolidation, restructuring following thefinancial crisis and market entry will continue to be keydrivers. Regulation including the RDR and Solvency II willalso provide a strong spur for acquisition.

Figure 1: UK mid-market deals (€50mn–€150mn) in the UK in 2010

Month Target company Sector Acquirer company Deal value (€m)

Dec Purpose U.K. Holdings Ltd Short-term lending Dollar Financial Corporation 147

Feb Torus Insurance Holdings Limited (undisclosed stake) Insurance Corsair Capital LLC; First Reserve Corporation 136

Jan RBS Asset Management Holdings (certain businesses) Asset Management Aberdeen Asset Management Plc 94

July KBC Peel Hunt Broking Existing management 89

Nov Save & Prosper Insurance Ltd;Save & Prosper Pensions Ltd Insurance Chesnara Plc 75

Jun British Arab Commercial Bank PLC (48.9% stake) Banking Libyan Arab Foreign Bank 68

Apr Thames River Capital LLP Asset Management F&C Asset Management Plc 62

Feb Execution Noble Limited (50.10% stake) Broking Banco Espirito Santo de Investimento 57


20 Aberdeen Asset Management media release,08.01.10.

21 KBC Group media release, 29.11.11.

22 BES media release, 30.11.10.

23 Religare Capital Markets media release, 22.11.10.

24 The Times, 26.03.08.

25 Reuters, 31.12.10.

26 ‘UK consumer credit in the eye of the storm,Precious Plastic 2011’, published by PwC on13.01.11.

27 Torus Insurance media release, 22.02.10.


If crisis management was the drivingforce behind European financial servicesM&A during 2008 and 2009, thenrestructuring – particularly in the bankingsector – was the dominant theme of 2010.As discussed in ‘Data Analysis’, privatesector deal-making recovered some of itsmomentum during the year, suggestingthat 2009 may have marked the bottomof the M&A downturn. We are alsoencouraged by the fact that much of thegrowth in deal values in 2010 was drivenby mid-market deals, rather than by ahandful of very large transactions.

Despite the abrupt slowdown in dealsduring the fourth quarter of 2010, we seeseveral reasons to be optimistic about theprospects for European financial servicesM&A in 2011. At a high level, the processof restructuring in European banking hasa considerable distance to run. A numberof banks still need to make disposals inorder to comply with EU state aidconditions, and the prospect of Basel IIIwill further encourage some banks todivest businesses which are sub-scale,remote from their home markets or poorlyaligned with core activities. Respondentsto our annual survey of the prospects forfinancial services M&A28 seem to agree,with more than half predicting that non-core sales will be the most dominanttheme of M&A in 2011 and 2012 (seeFigure 1).

We also see further scope forconsolidation in relatively fragmentedbanking markets such as Italy, Spain andGermany. In this context, it is interestingto note that 82% of those responding toour survey expect to see appetite for largedeals increasing during the coming year(see Figure 2).

More specifically, we identify threefactors that we expect to see playing aninfluential role on European financial

Looking Ahead

We expect European private sector financial services M&A to increase again in 2011. Restructuring in thebanking sector will remain the central driver of activity, but we expect the need for growth, the impact ofregulation and the role of private equity to exert increasing influence on deal-making during the year.

Figure 1: Percentage of respondents rating each theme as ‘most dominant’for M&A during 2011 & 2012

Source: European FS M&A online survey, Dec ‘10 – Jan ‘11

60%

50%

40%

30%

20%

10%

0%Sale of non-core

businessesBolt-on

acquisitionsExpansion inhigh growth

markets

Sale ofloan portfolios

Transformationalacquisitions

Expansionin home market

28 For details about our online survey, please refer to the information on page 19, headed ‘About PwC’.


services M&A during 2011. These aregrowth, regulation and private equity.

• Growth: In a world of low interest ratesand low returns on invested capital,financial services companies withsurplus capital will be keen to developnew growth avenues. Rationales foracquisition will include accessing newcustomers, developing new productexpertise and entering faster-growingmarkets. As a result, we expect the

recovery in cross-border deals seenduring the third quarter of 2010 to pickup again during the year.

• Regulation: 2010 saw a wave ofnational, European, US and globalregulation unleashed on the financialservices sector. The resultinguncertainty was seen by somecommentators as having put a brakeon deal-making during the year. We

now feel that regulation will emergeas a factor behind M&A during 2011.29

Regulation is rarely a primary driver oftransactions, but as the requirementsof new initiatives become clearer weexpect them to have an increasinginfluence on strategic decision-making.As more firms make decisions about themarkets they want to be in for themedium to longer term, restructuringwill naturally follow.

• Private equity: In ‘Data Analysis’ weexamined the increasing influence ofprivate equity capital on Europeanfinancial services M&A during 2010.Private equity activity across all sectorshas begun to recover from its 2009 low,but the pick-up has been relativelystrong in the financial services arena,with arguably more sponsors looking toinvest in financial services than duringthe boom years.

We expect 2011 to see a furtherincrease in deal announcementsinvolving private equity firms, whetheras direct bidders, as providers offinance or via secondary buyouts. It isnotable that our survey respondentsexpect private equity firms to berelatively prominent investors infinancial services during 2011 and 2012(see Figure 3).

Only time will tell what impact thesefactors will have on financial servicesdeal activity during 2011. Even so, we arehopeful that the lull in M&A during thefourth quarter of 2010 will prove to bethe calm before the storm, not a sign ofthings to come.

Figure 2: How respondents expect appetite for large deals to develop overthe coming year

Source: European FS M&A online survey, Dec ’10 – Jan ’11

80%

60%

40%

20%

0%Increase

significantlyIncreaseslightly

Remain thesame

Decreaseslightly

Decreasesignificantly

Don’t know

Figure 3: Percentage of respondents rating each type of investor as‘most prominent’ for M&A during 2011 & 2012

Source: European FS M&A online survey, Dec ’10 – Jan ’11

50%

40%

30%

20%

10%

0%Banks PE investors Asset

managersSovereign

Wealth FundsGovernments Insurers

We expect 2011 to see a further increase indeal announcements involving private equityfirms, whether as direct bidders, as providersof finance or via secondary buyouts.

29 Refer to article 'Regulatory overhaul in Europeanasset management set to drive M&A', EuropeanFinancial Services M&A Insight, September 2010,published by PwC.


The ‘Data Analysis’ and ‘Looking Ahead’sections in this issue include financialservices deals:

• Reported by mergermarket, Reutersand Dealogic;

• Announced during 2010, and expectedto complete;

• Involving the acquisition of a >30%stake (or significant stake givingeffective control to the acquirer);

• Acquisitions of Europe-based financialservices targets where a deal value hasbeen publicly disclosed.

Since 2009, our data coverage hasincluded Dealogic information. However,comparative figures for previous yearshave not been restated.

Our analysis also excludes deals that, inour view, are not ‘pure’ financial servicesdeals involving corporate entities orentire operations, e.g. real estate dealsand sales/purchases of asset portfolioswhere the disclosed deal value representsthe value of assets sold.

Methodology

The main areas of our services are:

• lead advisory corporate finance;

• deal structuring, drawing onaccounting, regulation and taxrequirements;

• due diligence: business, financial andoperational;

• business and asset valuations andfairness opinions;

• loan portfolio advisory services;including performance analysis, duediligence and valuation;

• post-merger integration: synergyassessments, planning and projectmanagement;

• valuation and fairness opinions;

• human resource and pensionscheme advice.

For more information on any of the aboveservices or if you have any otherenquiries, please contact:

Nick [email protected]

Fredrik [email protected]

About PwCM&A advisory services in thefinancial services sector

PwC is a leading consulting and accounting adviser for M&A in the financial services sector. Through ourCorporate Finance, Strategy, Structuring, Transaction Services, Valuation, Consulting, Human Resource andTax practices, we offer a full suite of M&A advisory services.


About this reportIn addition to the named authors of the articles, the main authors of andeditorial team for this report were Nick Page, a partner in PwC (UK) andFredrik Johansson, a director in PwC (UK) Transaction Services – FinancialServices team in London. Other contributions were made by Andrew Mills ofInsight Financial Research and Maya Bhatti, Bridget Hallahane, KatrinaHallpike, Caroline Nurse and Antoine Royer of PwC (UK).

About the survey conducted for this studyBetween December 2010 and January 2011, PricewaterhouseCoopers (UK)conducted an online survey of a sample of its European financial servicesclients, gathering their responses to key questions about the development ofM&A activity during 2011 and 2012. There was a spread of respondents frombanking, insurance, asset management, private equity and other sub-sectors offinancial services.

www.pwc.com/financialservicesThis publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon theinformation contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracyor completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agentsdo not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the informationcontained in this publication or for any decision based on it.

© 2011 PricewaterhouseCoopers LLP. All rights reserved. In this document, "PwC" refers to PricewaterhouseCoopers LLP (a limited liability partnership in the UnitedKingdom), which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

For further information on the Global Financial Services M&A Marketing programme or for additional copies please contact Maya Bhatti, Global Financial ServicesMarketing, PwC (UK) on +44 207 213 2302 or at [email protected]

Documents

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