The financial services sector is one among five “hot” sectors that will see a high volume of mergers and acquisitions for the 2018 fiscal year, according to a new report by commercial law firm Minter Ellison.
The Minter Ellison Directions In Public M&A Report 2017 also singled out health and aged care, IT and software services, food and agribusiness, and infrastructure as potential hotbeds for M&A activity in the coming year.
Speaking to InvestorDaily, MinterEllison corporate M&A partner Alberto Colla said there were two key themes supporting MinterEllison’s prediction for this sector.
“The first is that a lot of banks are looking to divest loan portfolios that are not core to their business,” Mr Colla said.
“You’ve seen a lot of transactions in FY17, or should I say, a few transactions in FY17, that we see as the tip of the iceberg where tanks are hiving off … loan portfolios in areas that they either regard as non-core or too risky.”
At the same time, non-bank financial institutions were “happily” buying these portfolios, and transactions of this kind are likely to continue, Mr Colla said.
The second reason for more M&A activity in this sector was due to increased regulation and scrutiny, according to Mr Colla.
“You've had, over the best part of a decade and a half, banks acquiring related wealth management businesses such as insurance and super and financial type services, wealth creation type businesses, and adding them onto their core banking business,” he said.
“We perceive that a lot of banks will actually say: ‘let’s just return to our core business of banking and let’s de-merge our wealth management and insurance businesses to clean up our core offering'.”
The report also indicated that while most deals (85 per cent) this fiscal year had been friendly, hostile takeovers were ‘back in vogue’, emboldened by market volatility and uncertainty.
“Hostile bids in FY17 had mixed success,” the report said.
“The re-emergence of hostile bids in FY17 may encourage other acquirers to follower a similar aggressive approach.”