M&A high on the agenda for financial firms pursuing growth, new survey finds
More than nine in 10 financial services firms are considering mergers and acquisitions as a means of growth, according to a new UK survey conducted by leading independent accountancy and business advisory firm Johnston Carmichael.
More than two in five respondents identified M&A as a major part of their growth strategy, while 52% said they would be interested if the right opportunity arose. Only 4% said they were not looking to pursue M&A activity.
The survey was completed by around 300 senior professionals across retail banking, insurance, wealth and private asset management at a time of profound transformation across the sector, driven by digital advancements and ongoing fiscal and regulatory change.
A range of motivations were cited for seeking M&A, including building economies of scale, whether by expanding balances or increasing customer numbers (46%) while innovation – particularly acquiring new technologies, products, or capabilities – was noted by 44%.
Ewen Fleming, partner and head of financial services at Johnston Carmichael, said:“Our survey findings reflect some significant shifts in the financial services marketplace, yet the pre-eminence of the big 6 in retail banking remains, as scale is seen as a vital factor in achieving success.
“The reputation of our high street banks suffered greatly following the financial crash losing the trust of government, media and consumers. Additionally, they faced new competition with the growth of digital challengers offering more convenient products and services. Their return to prominence during the pandemic, when they operated many of the government’s emergency loan schemes designed to keep businesses afloat, has been bolstered too by their significant investment in new technology. By copying their digital competitors, and in some cases acquiring them, they have also become ‘digital first’ providers and diminished the difference between them and their rivals.
“Now we are seeing further consolidation across retail banking, including Nationwide’s acquisition of Virgin Money and Coventry Building Society looking to buy The Co-operative Bank, and others are likely to follow. Firms are looking for growth and to enhance their competitive positioning by bringing in new capabilities and acquire customers and their balances.
“However, it remains to be seen if customers will be happy for their accounts to be operated by a brand they did not choose.”
The survey finds that while there is an appetite for M&A, businesses are realistic about the challenges of M&A activity. Pre-deal, due diligence (spanning commercial, operational and technological aspects) is a key concern, as is designing a target operating model that enables the forecasted benefits of the deal to be realised. Post-deal, the integration of technology was highlighted by 40% of respondents as a significant hurdle, reflecting the complexities of merging disparate systems and ensuring operational continuity. Challenges such as integration planning, programme delivery, governance and compliance and cultural alignment were cited by 30-40% of respondents.
Ewen added: “With funding rounds by fintechs becoming more difficult, businesses that offer something truly unique in the marketplace have the best chance of successfully scaling and operating as profitable independent brands.”
