Brave new world: New frontiers in banking M&A

Research from PwC has found that recent years’ decline in banking M&A is not simply due to a cyclical downturn but represents a radically changed economic and regulatory environment.

The sovereign debt crisis in Europe will continue to affect banking M&A for as long as it continues. The political and economic uncertainty emanating from the eurozone is making it harder to predict future impairments, agree on valuations, arrange funding and gain shareholder approval. The crisis is also having a significant impact on deal confidence, and thus frustrating M&A.

Restructuring will remain the most important driver of banking M&A in Western Europe over the next few years, as banks seek to focus on core businesses and exit peripheral activities. Despite a backlog of potential disposals, market volatility and uncertainty over banks’ potential credit losses mean that buyers and sellers may continue to struggle to agree on valuations.

Finding buyers for non-core businesses will also remain challenging. Many European banks are effectively barred from acquisitions by capital restrictions and investor scepticism. Nor are many banks from outside Western Europe attracted to invest in the region. Even so, there may be interest from some Asian players in distressed European targets that offer the chance to build a niche presence or acquire useful skills and expertise.

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