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Regulation and disruption to drive finance M&A

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By Jessica Yun
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3 minute read

Financial services M&A throughout 2018 is likely to be driven by regulation and vertically integrated business models, says PwC.

Speaking in Sydney on Tuesday, PwC mergers and acquisitions (M&A) managing director Stuart Goddard highlighted a number of issues that would define financial services M&A in 2018.

“A large amount of activity just in the recent past [has been down to] regulatory risk triggers,” Mr Goddard said.

The major financial institutions, which are required by the Australian Prudential Regulation Authority (APRA) to hold high levels of regulatory capital, have been rethinking the benefits of owning life insurance businesses, he added.

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The Commonwealth Bank of Australia divested its life insurance business CommInsure to AIA Group for $3.8 billion in September 2017, and three months later ANZ’s insurance subsidiary OnePath was acquired by Zurich for nearly $2.9 billion.

Pointing to another issue affecting mergers and acquisitions, Mr Goddard added: “The big one that we're all keeping a very close eye on at the moment is what's going to happen to the vertically integrated models that the large banks and large insurers have been operating.”

ASIC released a report on 24 January that found 68 per cent of client funds across subsidiaries of major banks were invested in products owned and operated by those entities.

However, the Financial Services Council defended the vertical integration model, arguing it could provide “economies of scale and other benefits for customers”.

Virtual data room provider Ansarada chief executive Sam Riley said an environment of "change and disruption" typically drove more deals.

"The fintech areas are quite popular and growing, so there's a lot more deals out of fintech," Mr Riley added.

A report released yesterday by Ansarada indicated a “rosy picture for the Australian deal market” following a “relatively subdued” year of M&A activity in 2017.

“Market growth shows very positive signs, with businesses looking to mergers and acquisitions as a means of growth,” the report said.

“The focus on growth is made evident with a 21 per cent increase in M&A activity for the year.

“The volumes of [data] rooms recently opened suggest that the surge in deals completed at the end of the year will continue into 2018.”

Regulation and disruption to drive finance M&A

Financial services M&A throughout 2018 is likely to be driven by regulation and vertically integrated business models, says PwC.

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