EUROPE - Increased focus on higher returns could lead to more M&A activity among asset managers as they seek to re-evaluate their strategies through disposal of non-core activities or shore up core activities through acquisitions, a new report by PricewaterhouseCoopers (PwC) has said.
The PwC report on the review and outlook for M&A in the European financial services market said that the pressure on traditional European institutional players has been driven by the increased focus by clients on absolute returns rather than relative returns against a benchmark leading to a growing trend towards specialist mandates.
The increased power of investment consultants (particularly in the UK and the Netherlands) and more active management from pension fund trustees are also a growing headache for funds managers.
“These pressures are leading institutional asset managers to re-evaluate their strategies. This may result in significant business restructuring, leading to increased M&A activity as asset managers seek to refocus their activities through the disposal of non-core functions, acquire niche specialists or bulk-up core activities through acquisition,” the report said.
The report found that there are signs are that M&A activity in the European financial services sector is picking up again as companies return to focusing on growth in 2005/6 driven by pressures for volume, scale and the search for new markets.
In 2004, European financial services deal activity increased by a third in terms of total announced deal value to e44.8bn in 2004, an increase of e11.3bn from 2003, making financial services the second most active sector in Europe for M&A after pharmaceuticals.
Compared with 2003, there was a significant increase in the proportion of cross-border deals, representing 61% of all financial services activities in 2004.
In banking, there is likely to be further domestic consolidation in the more fragmented European markets such as Italy and Germany. However Damian Guly, partner,PricewaterhouseCoopers said: Major transformational deals were notable for their rarity due to lower appetite for risk, scarcity of capital and tighter regulatory requirements. This followed a period in which most corporates had seen their balance sheets damaged by the bear market and we have seen only two ‘front page’ deals in the last 18 months of over €10 billion in value - Santander/Abbey and UniCredito/HVB.”
Last week, in an move that is being called Europe’s biggest cross-border take-over, UniCredito said that it would acquire the German HVB for e15.4bn.
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