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Sharing deal insightEuropean Financial Services M&A news and views

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Contents

03 Welcome

04 Data Analysis

08 Sustaining profitable growth

12 Government intervention spursdecade of change for banks

14 Private equity sets sights onfinancial services

17 Methodology

€9.8bnof private sector deals in the first quarter of2011, up 75% on the previous quarter.

€8.5bnof total deal value (87%) was generatedthrough domestic transactions.

The opening quarter of the year saw a15% rise in deal values from the firstquarter of 2010. The transactions includea number of significant deals in Russiaand Spain, along with the announcementof major further consolidation within theexchange sector. Deal activity looks set togather pace in 2011 as restructuringcontinues and institutions across allsectors seek out opportunities for growth(see ‘Data analysis’).

With growth in most European economiescontinuing to be relatively subdued, beingable to identify and concentrate capitaland resources on areas of the businessthat can generate the best returns will beeven more critical. The sharper focus onthe core franchise is likely to spur greaterdivestment of non-core assets. The buyersare likely to include both financialinvestors and companies looking tostrengthen their presence in a particularterritory or market segment (see‘Sustaining profitable growth’).

Banks are facing the prospect of highercapital requirements under Basel III andthe withdrawal of special liquiditymeasures. The impact is likely to intensifythe focus on what is core and what is non-core, and the resulting pressure forconsolidation and divestment. A numberof innovative structures are also set toemerge as institutions seek to reduce the

risks on their balance sheets and makethe most efficient use of capital (see‘Government intervention spursdecade of change for banks’).

Many private equity funds have greatlyincreased their dedicated FS deal teamsas they look to capitalise on growingdivestment and restructuringopportunities in the sector. Many of thesmaller European savings’ institutions,which have been badly affected by theeconomic downturn, may be particulartargets for private equity and may in turnwelcome private equity investment.Other opportunities include non-coreloan portfolios, which have now reached€1.3 trillion across Europe according tonewly published PwC research1 (see‘Private equity sets sights on financialservices’).

We hope that you find this edition ofSharing Deal Insight interesting. Seekingout opportunities for growth, the impactof government intervention and theincreasing interest of private equity fundsare among the themes that will beexplored further during PwC’s M&Aconference in London in May. Please donot hesitate to contact either of us or anyof the article authors if you have anycomments or questions.

Welcometo the second edition of Sharing DealInsight for 2011.

Nick PagePwC (UK)[email protected]

Fredrik JohanssonPwC (UK)[email protected]

The report aims to provide perspectives on the recent trends and future developments in the European financialservices (FS) M&A market, including analysis of the latest transactions and insights into emerging investmentopportunities.

PwC Sharing deal insight 3

1 PwC media release, 13.04.11.


The value of European FS M&A activityduring the first quarter of 2011 reached€9.8bn, 15% higher than the €8.6bnrecorded in the first quarter of 2010 butonly marginally more than the €9.5bnseen in the fourth quarter of 2010.2

However, the virtual absence ofgovernment-led deals means that privatesector M&A increased in value by 75%from the previous quarter’s figure of€5.6bn, when the €3.8bn nationalisationof Allied Irish Banks was the quarter’slargest transaction.

The quarter saw three deals valued atmore than €1bn (see Figure 1). Thesewere the acquisition of a controlling stakein Bank of Moscow by VTB Bank for€2.6bn, and two transactions related tothe restructuring of Spanish savings bankLa Caixa valued at €1.8bn and €1.1bn,respectively. We examine all three ofthese deals in more detail below.

Small and mid-market deal activityremains relatively subdued. The totalvalue of announced deals worth less than€1bn fell slightly to €4.4bn from €4.5bn,

Data analysis

In terms of European financial services M&A, the first quarter of 2011 has taken up where 2010 left off.Deal activity remains slow but steady, with restructuring and consolidation in the banking sector continuingto be the major drivers of deal flow. Russian and Spanish markets have been particularly busy.

Figure 1: European FS M&A by value (€bn), Q1 2010 – Q1 2011

Source: PricewaterhouseCoopers analysis of mergermarket, Reuters and Dealogic data

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Reuters and Dealogic, unless otherwise specified.For details of our analysis methodology, pleaserefer to the summary on page 17.

1. €1.3bn BNP ParibasLuxembourg SA (47%)

2. €1.2bn RBS SempraCommodities LLP(European and Asianoperations)

1. €3.9bn Deutsche Postbank AG (70%) 2. €3.1bn Bank Zachodni WBK SA 3. €2.3bn Royal Bank of Scotland Group plc (Global Merchant Services)4. €2bn Royal Bank of Scotland Group (318 UK branches)

1. €3.3bn AXA SA (UK lifeand pensions businesses)

2. €1.4bn KBL EuropeanPrivate Bankers S.A

1. €3.8bn Allied Irish Banksplc (91%)

2. €1.1bn Bluebay AssetManagement Plc

1. €2.6bn Bank of Moscow OAO (46%)2. €1.8bn Caja de Ahorros y Pensiones de

barcelona – La Caixa (Banking operations)3. €1.1bn Vidacaixa-Adeslas Seguros

Generales (50% stake)


and the total number of deals in our dataset fell to 221, down from 253 and 391during the two preceding quarters.

This is the fifth time in seven quarters thatthe total value of European FS M&A inour data set has not managed to exceed€10bn, despite European financial stockshaving now enjoyed a two-year marketrecovery (see Figure 2). Equity marketsare often seen as a good predictor ofM&A, but so far in 2011, Europeanactivity has been relatively subduedcompared to levels in North America,3

particularly in FS.

An analysis of European FS M&A showsthat while asset management deal valuesdeclined quarter-on-quarter, activityinvolving banking, insurance and otherFS targets increased slightly from the lastquarter’s levels (see Figure 3 overleaf).If the nationalisation of AIB wereexcluded from deal data for the lastquarter of 2010, banking activity wouldappear to have grown much morestrongly.

Figure 2: FTSE Eurofirst 300 Index, May 2008 – May 2011


3 ‘US rediscovers appetite for M&A’,Financial Times, 30.03.11.

This is the fifth timein seven quartersthat the total valueof European FS M&Ain our data set hasnot managed toexceed €10bn,despite Europeanfinancial stockshaving now enjoyeda two-year marketrecovery.

May 2008 May 2009 May 2010 May 2011

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Domestic deals continue to dominateEuropean FS M&A, accounting for eightof the quarter’s top ten deals and 87% oftotal deal value, a further increase on theprevious quarter’s figure of 75% and thehighest level for two years (see Figure 4).Deals involving Russian and Spanishtargets reached €3.3bn – equivalent to33% of the quarterly total – in eachcountry.

The ten largest deals announced duringthe first quarter of 2011 (see Figure 5)point to the following strategic themes,especially when considered alongsideother small and mid-market deals:

• Domestic banking acquisitions. Thiswas particularly notable in Russia,where two state-controlled banks madesignificant acquisitions. VTB Bankacquired the City of Moscow’s stake inBank of Moscow for €2.6bn, a follow-upto its acquisition of TransCreditBank inDecember 2010. In a separate deal,Sberbank acquired Troika Dialog –Moscow’s oldest brokerage firm – for€722m, with the aim of capturing alarger share of the Russian investmentbanking market.

Beyond Russia, several othertransactions were aimed at buildingdomestic banking scale. Two notabledeals in Belgium were Credit AgricoleBelgium’s purchase of commercial bankCentea from KBC (for €527m), andBank J Van Breda’s acquisition ofBelgian rival Antwerps Beroepskrediet(€115m). The quarter also sawSparekassen Faaborg of Denmarkacquire local rival Svendborg for €56m.

• Banking restructuring. This wasevident in several countries, includingthe above-mentioned sale of Centea,which released around €400m ofcapital for KBC. In Poland, RaiffeisenInternational of Austria acquired 70%of Greek bank EFG Eurobank’s localoperations for €490m, increasing itsexposure to Polish retail bankinggrowth. Although not reflected in ourdata set (which excludes rejected bids),National Bank of Greece’s €2.9bnapproach to local rival Alpha Bank wasanother sign of the potential forrestructuring in the Greek bankingmarket.

Despite these deals however, bankingrestructuring during the first quarter of2011 was dominated by transactions inSpain. In particular, the complexinternal restructuring of La Caixagenerated significant activity. Thisprocess involves the transfer of LaCaixa’s banking operations into listedsubsidiary Criteria in exchange forselected industrial holdings and theissuance of new capital, along with therenaming of Criteira as Caixabank andthe creation of a new entity for non-core businesses and investments. In ourdata set, the internal transfer is valuedat €1.8bn, based on the expected valueof newly issued equity.4 La Caixa’sinternal restructuring was accompaniedby the sale of 50% of insurancesubsidiary VidaCaixa Adeslas SegurosGenerales to Spanish motor insurerMutua Madrilena, for €1.1bn.

Figure 3: European FS M&A by value (€bn) by subsector, Q1 2010 – Q1 2011

n Asset Management n Banking n Insurance n Other


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Figure 4: European FS M&A by value (€bn), domestic v. cross-border,Q1 2010 – Q1 2011

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4 Data sourced from Dealogic. Some press reportshave put a value of €9bn–€10bn on La Caixa’sinternal restructuring, based on the book value ofan intra-group asset swap.

Domestic deals continue to dominateEuropean FS M&A, accounting for eightof the quarter’s top ten deals and 87% oftotal deal value.



Beyond La Caixa, Spanish bankingrestructuring saw the launch of a lifeinsurance and asset management jointventure between Banco Popular andAllianz, in a deal valued at €423m.The new entity combines two existingjoint ventures between the twoorganisations, and adds Popular’s Spanishasset management unit Popular Gestion.Lastly, several mergers between Spanishmutual savings banks were alsoannounced during the quarter, althoughdeal values were not disclosed.

• Scale-building in asset management,asset servicing and insurance. Assetmanagers generated several domestictransactions, most notably Henderson’sacquisition of UK peer Gartmore for€403m and the purchase of Swedishfirm Saeki by local rivalInvestmentaktiebolaget Latour for€398m. Several UK asset managementdeals with undisclosed deal values werealso announced during the quarter,with Border Asset Management,Sterling McCall Wealth Managementand Holistic Wealth Management allacquired by in-market rivals. Theongoing drive for scale in asset

servicing continued too, with NorthernTrust’s acquisition of Bank of Ireland’ssecurities servicing business for €60m.

In addition to Mutua Madrilena’sinvestment in VidaCaixa Adeslas, thequarter saw several mid-markettransactions targeting insurers andinsurance brokers. UK brokerTowergate was the subject of asecondary private equity buyout byAdvent International from Och-Ziff (for€234m), while Ageas also acquired aBritish broker (Castle Cover, for €61m)and a 31% stake in a Turkish insurer(Aksigorta, for €162m).

One major FS M&A trend that generatedheadlines during the first quarter of 2011was consolidation among financialexchanges. Deutsche Borse’s €9.1bn bidfor NYSE Euronext, the counterbid fromNasdaq OMX and ICE, and London StockExchange’s agreement to merge withTMX of Canada in a deal worth €2.3bn,do not feature in our data set as thetargets are outside European markets.If completed however, both deals couldhave significant implications forEuropean financial infrastructure.

In another interesting development,Chi-X, a UK-based equity multilateraltrading facility (MTF), announced itsacquisition by US competitor, BATSGlobal Markets. This transaction suggeststhat Chi-X and other MTFs are no moreimmune from market forces than thetraditional stock exchanges that theychallenge.

In summary, the first quarter of 2011saw no significant improvement in totalEuropean FS deal values, but stillgenerated a range of significanttransactions. There is no question thatbanking restructuring remains the drivingforce behind M&A activity, but it isequally clear that willing buyers continueto emerge. We also take encouragementfrom the pick-up in private sectortransactions and the continuing flow ofdeals in every sector of European FS.It remains to be seen whether Europeandeal activity will match US levels in thecoming quarters, but barring a freshoutbreak of equity market volatility westill believe that 2011 should be a year ofM&A recovery.

Figure 5: Top 10 European FS M&A deals, Q1 2011

Month Target company Target country Bidder company Bidder country Deal Value (€m)

Feb Bank of Moscow (46%) Russia VTB Bank Russia 2,557

Jan La Caixa (Banking operations) Spain Criteria CaixaCorp Spain 1,776

Jan VidaCaixa Adeslas (50%) Spain Mutua Madrilena Automovilista Spain 1,075

Mar Troika Dialog Russia Sberbank Russia 722

Mar Centea Belgium Credit Agricole Belgium Belgium 527

Feb Polbank EFG (70%) Poland Raiffeisen International Austria 490

Mar Eurovida; Europensiones; Spain Allianz Popular Holding Spain 423Popular Gestion

Jan Gartmore Investment Management UK Henderson Group UK 403

Mar Saeki Sweden Investmentaktiebolaget Latour Sweden 398

Jan Towergate Partnership UK Advent International USA 234

Sub-total 8,605

Other 1,217

Grand total 9,822



The environment in which bankers have spent most, if not all, of their careers haschanged. Most tellingly, having significantly outstripped expansion in GDP for nearly30 years (see Figure 1), growth in the banking markets of Western Europe has stalled.

Any return to the consistently high levels of banking market growth seen during thepre-financial crisis era would appear unlikely and would certainly be difficult tosustain. Most Western European countries are currently struggling to sustain themomentum of economic recovery as they grapple with mounting fiscal pressures andfragile business and consumer confidence. The longer term picture is equallychallenging as the slow growth in GDP looks set to continue and a combination ofdeleveraging, tighter regulation and higher capital charges constrain expansion in thedeveloped banking market.

Sustaining profitable growth

Andrew DawsonPwC (UK)[email protected]

Andrew Nevin PhDPwC (UK)[email protected]

As growth in the developed markets slows and trade flows between emerging markets accelerate, how can WesternEuropean banks sustain growth?

Figure 1: Bank assets versus nominal GDP, 1980–2007:

CAGR 1980–2007 Bank assets – Europe (19%) Bank assets – World (17.9%)Nominal GDP – World (6.3%) Nominal GDP – Europe (5.9%)

Source: Datastream, IMF

Note: Bank asset indices are calculated based on total assets for listed banks only

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The developments in and fortunes of thebanking sector are likely to be much moreclosely tied to the wider economy in thisnew environment. Governments wantbanks to play a more active role insupporting domestic businesses andnational interests as the price for theirfunding during the crisis (see‘Government intervention spurs decade ofchange for banks’ on pages 12–13).Financial institutions will also have tocontend with demographic change. InGermany, for example, the size of themost economically active 25–55 agegroup is expected to fall by nearly 30%over the next 40 years, which will have aconsiderable impact on investmentpatterns and the product mix of financialinstitutions.5

Multi-polar economyWhile many Western Europeaneconomies are not growing as fast as inthe pre-crisis period, GDP growth in theworld as a whole is now back to itsaverage pre-crisis level of just over 3%.6

What has of course changed is that thisgrowth is primarily focused on theemerging markets of South America,Africa, Asia and the Middle East(SAAAME) – see Figure 2.

Looking ahead, our latest analysisanticipates that the GDP of the largestemerging economies (‘E7’) will overtakethe current G7 economies by 2020(see Figure 3), and China may also havesurpassed the US at the end of the lastdecade. This shift in the focus ofeconomic growth will be reflected in therelative share of the global banking assets.

Figure 2: Eurozone faces a tough two years, while emerging markets are expected to expand rapidly

Figure 3: E7 outstrips G7

GDP of G7 and E7 countries, 2009 vs 2050 (PPP) Share of global banking assets, 2004 vs 2050

CAGR 2009–2050 n G7 (2.1%) n E7 (4.7%)

Source: PwC – The World in 2050 (Published Jan 2011)

Note: E7 = Brazil, Russia, India, China, Indonesia, Mexico and Turkey. G7 = Canada, France, Germany, Italy,Japan, UK and USA

n E7 n G7 n Rest of the world

Source: PwC – Banking in 2050 (Published 2007)

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6 WTO and PwC analysis, April 2011.

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The crucial feature of the development ofthe SAAAME economies is not so muchhow fast they’re expanding, but theconnectivity between them as the newindustrial powers, China in particular,look to secure direct access to key rawmaterials. As Figure 4 highlights,emerging-to-emerging market trade flowsare expanding much faster thandeveloped-to-emerging market business.As a growing amount of global commerceand investment bypasses the Westaltogether, G7 banks could beincreasingly left out of the loop. Notablerecent examples include Foxconn, theTaiwanese maker of components foriPhones and iPads, which is considering a€8.5 billion investment in Brazil.7

Faced with subdued growth at home,many Western European banks arelooking to strengthen their presence inthe SAAAME markets. Yet regulation and

local competition could make it moredifficult for foreign banks to penetratesome of these markets. Western Europeanbanks could also find themselves on thedefensive in their home markets as E7banks look to expand overseas – theworld’s two largest banks are Chinese.8

An important underlying development isthe changing balance of capital assovereign wealth funds, many of thembased within the SAAAME, become anincreasingly important investor in thebanking sector.

From ubiquity to precisionAs growth in domestic markets slows andcompetition for the remaining businessincreases, banks are likely to find itincreasingly difficult to be all things to allpeople (‘ubiquity’). Successful groups aretherefore likely to be much more ruthlessin focusing on and optimising their corerelationships and sources of value(‘precision’). We are already seeingsharper customer segmentation, greaterdiscipline in deploying resources andwithdrawal from markets that offer littleprospect of delivering an economicreturn. This is underpinned by a betterunderstanding of component costs andreal returns.

Consolidation within the WesternEuropean banking markets is set toincrease as banks seek to build scale and

Figure 4: Evolving trade flows

Source: WTO, PwC analysis

Note: Developed countries include North America, Europe (includes 27 EU and Eastern European countries),Japan, Australia and New Zealand. Emerging countries include South and Central America, the CIS, Africa, theMiddle East and Asia (excluding Japan, Australia and New Zealand)

Value of trade(2005)

$5,180bn 51% $5,500bn 46% 1.5%Developed todeveloped

$1,982bn 20% $2,302bn 19% 3.8%Emerging todeveloped

$1,360bn 13% $1,789bn 15% 7.1%Developed toemerging

$1,577bn 16% $2,387bn 20% 10.9%Emerging toemerging

Share of trade(2005)

Value of trade(2009)

Share of trade(2009)

CAGR(2005–2009)

7 Reuters, 13.04.11.

8 Datastream, 29.09.10.

Looking ahead, our latest analysis anticipatesthat the GDP of the largest emerging economies(‘E7’) will overtake the current G7 economiesby 2020, and China may also have surpassedthe US at the end of the decade.


strengthen their core franchise. Thesellers are likely to include institutionsthat have chosen to concentrate on otherterritories or competencies.

Finding ways to develop business withinthe SAAAME – tapping into emerging-to-emerging market trade flows in particular– will also be crucial in sustainingprofitability. In the face of increasingtakeover prices and regulatory barriers toacquisition within a number of emergingmarkets, joint ventures with localpartners on the ground will continue topredominate.

Innovation will be important in cuttingcosts and improving service. Rather thanmaking huge investments up front, manybanks are likely to work in partnershipwith technology providers as part of whathave come to be known as ‘co-opetition’models (combining competition andco-operation). Co-opetition with systems’companies or even other banks will alsobe important for G7 banks in providingservices that may be unprofitable oroutside the core franchise, but would stillbe required because of the need tomaintain a commercial relationship ormeet government expectations.

Editorial eyeThe banking sector in Western Europe is undergoingfundamental change. Sustaining profitable growth is goingto be more challenging for some institutions. However, foragile and forward-thinking institutions this will remain oneof the most profitable sectors of the economy, though the keysources of profitability may be very different. Acquisition anddivestment will be crucial in enabling banks to focus theircapital and talent on areas of their business that offer thebest potential for differentiation and maximising returns.As Western European banks look to develop their businessinternationally, it will also be important to follow thechanging global trading patterns, much of which are beyondthe Western orbit and therefore largely untapped bydeveloped market banks.

Andrew Dawson and Andrew S. Nevin PhD lead PwC’s Project Blue, which assessesthe economic, environmental and demographic trends shaping the banking sector andthe prospects for future profitability and growth.


Stability has largely returned to the UKbanking sector. Loan losses are fallingand profits returning, although banks’return on equity (RoE) is still significantlylower than before the financial crisis.There has also been a reduction of riskconcentrations in trading areas, as well asbroader steps to strengthen balance sheetmanagement. However, there has actuallybeen far less of a structural shake-up andthe deal activity that would be associatedwith this than some might have expected,given the scale of the difficulties faced bymany banks.

There are a number of reasons whydeal activity has remained subdued.Emergency arrangements including thespecial liquidity scheme (SLS) haveprovided banks with a source of fundingthat would not otherwise have beenavailable over the last two years. TheGovernment aid for the banks worstaffected by the crisis also confirmed theimplicit guarantee of support to othersystemically important banks. In relationto non-performing loans, defaults havebeen contained by the low interest rateenvironment, which has not onlyimproved affordability, but also boostedasset values.

From macro- tomicro-interventionThis equilibrium is about to shift. TheBank of England is committed to thewithdrawal of SLS.9 This will eventuallybe followed by the sale of state-ownedholdings.10 So the macro-interventions tosupport the banking sector through thecrisis are set to give way to more micro-interventions to bolster the industry’slong-term stability. If enacted, theproposals set out in the interim report ofthe Independent Commission on Banking(ICB) will ring-fence the retail activitiesof systemically important institutions.While falling short of recommending fullseparation of retail and investment banks,this may spur some ‘universal banks’ toreappraise their core focus. Greaterportability of accounts, which is designedto promote competition, may also effectthe stability of deposits as a source offunding and require different matchingof assets and loan portfolios.

Government intervention spursdecade of change for banks

Nick ForrestPwC (UK)[email protected]

James WorsnipPwC (UK)[email protected]

The UK Government is seeking to strengthen the long-term stability of the banking sector through a series offar-reaching regulatory changes, which are designed to limit the risk of a bank failure and remove the implicittaxpayer support for institutions. These interventions could provide a much stronger catalyst for structuralchange in the UK banking industry than the financial crisis itself.

09 Bank of England Financial Stability Report,December 2010.

10 Bank of England Financial Stability Report,December 2010.


Reshaping the sectorThe combined effect of these structuralmeasures will be a quickening in the paceof change within the industry. As fundingand capital becomes more costly andconstrained, banks will face pressingchoices about what risks to retain andwhere their limited financial resourcesshould be deployed. As discussed in theSustaining profitable growth article, thiscould be characterised as a move fromubiquity to precision. Restricted financialresources will sharpen the focus on whatis core and where the business can exertthe greatest competitive advantages. Inmaking these choices, some banks willchoose to exit non-strategic markets,leading to a significant increase indivestment on the one hand andacquisitions to strengthen the corefranchises on the other. The impetus tooffload non-performing and non-coreloans will also increase – the UK accountsfor a significant proportion of the some€1.3 trillion in non-core and €800 billionin non-performing loans across Europe.11

There will also be opportunities. As lowerperforming assets are relinquished andbanks focus more closely on their corestrengths, these institutions will beseeking growth once again. Indeed, thosebanks that can restore balance sheet

strength the quickest will be in a positionto seek acquisitions from thoseinstitutions still undergoing restructuring.As we explore in ‘Private equity sets sightson FS’ (see page 14), financial investorswill also be looking to capitalise on thisdivestment and restructuring. In turn, wecould see life insurers seeking to acquireexposure to the longer term risk ofmortgage books to match long durationliabilities. Specialist consolidators mightalso look to step in to buy mortgage booksin the same way as they have sought toacquire discontinued life insurancebusiness. Innovation may also play animportant role in enabling banks toreduce their risk-weighted assets throughforms of insurance sheltering. Other

opportunities include mechanisms thatallow institutions to demonstrate a limiton the downside exposure of a book ofbusiness, without crystallising anaccounting loss.

As regulatory reforms are implementedbanks should be more able to fail withouttriggering a broader financial crisis(through their recovery and resolutionplans – ‘living wills’). This means that, infuture, governments will press for morerestructuring of vulnerable banks, ratherthan providing direct support.

Editorial eyeAs government intervention moves from emergency supportto strategic intervention, banks will face pressure torestructure balance sheets and tighten the focus of theirbusiness. Acquisition and divestment will be crucial tools inenabling banks to reduce capital charges, enhance liquidityand concentrate on their most profitable business.

11 PwC media release, 13.04.11.


In the years leading up to the globalfinancial crisis, private equity investmentwithin the European FS sector wasrelatively limited compared to highlytargeted sectors such as retail. Manyprivate equity funds were wary of thecomplex compliance demands within theFS industry or reluctant to tie up fundsover the long-term to meet regulatorycapital requirements. These requirementsalso made it difficult to acquire a capital-regulated company through a leveragedbuyout.

However, a number of private equityfunds had always maintained a closefocus on FS and interest among theprivate equity community as a wholehad been steadily increasing beforethe financial crisis. As the FS sectorundergoes fundamental restructuring inthe wake of the crisis, it is rapidly movingto the centre of the private equity radar.

It is well known that investors made goodreturns on their investments (over 100%in just a few years in some cases) frombuying, restructuring and selling onbanks that had been stricken by the 1997Asian financial crisis.12 With manyEuropean banks currently weighed downby bad debts and struggling to raiseenough capital to meet higher regulatory

requirements, there are some parallelswith certain Asian institutions followingthe 1997 crisis. The openings for privateequity investment in the European FSindustry have been bolstered by thegrowing range of takeover targets on offerand general fall in acquisition prices sincethe global financial crisis.

Targeting mutualsMany of the smaller European savingsinstitutions that have been badly affectedby the economic downturn may beparticular targets for private equity andmay in turn welcome private equityinvestment. These include the cajas inSpain, German landesbanks and buildingsocieties in the UK. Pressure forconsolidation has been building in theserelatively fragmented market segments.Being mutual institutions, the cajas andbuilding societies may also find it moredifficult to raise more capital from theirmembers and may therefore be moreopen to private equity investment.

In 2010, JC Flowers, one of the privateequity funds that had been an activeinvestor in Asia following the 1997 crisis,acquired a 40% stake in the UK buildingsociety, Kent Reliance, subsequentlyrenamed OneSavings Bank.13 Marketreports suggest this may be the platform

Private equity sets sightson financial services

Shamshad AliPwC (UK)[email protected]

Pierre ClementPwC (Luxembourg)[email protected]

Jean-FrancoisKroonenPwC (UK)[email protected]

Many private equity funds have greatly increased their dedicated financial services (FS) deal teams as they look tocapitalise on growing divestment and restructuring opportunities in the sector. What areas of FS are likely to beparticularly attractive to private equity? How can FS organisations make the most of this investment potential?

12 Entering the South Korea Financial ServicesMarket, published by PwC, 09.05.08.

13 Kent Reliance media release, 31.01.11.


for the creation of a ‘supermutual’through the acquisition of other buildingsocieties, with shares jointly owned bymembers and JC Flowers.14 In Spain,market reports suggest that up to a dozenprivate equity funds are interested ininvesting in cajas.15

Other relatively fragmented sectors thatcould attract further private equityinterest include private banking. The2010 merger between the wealthmanagement business of the Quilvest,a listed investment company active inprivate equity, and Luxembourg-basedprivate bank Compagnie de BanquePrivée (CBP) is an especially interestingdevelopment.16 Bringing the businessestogether has created significant cross-selling opportunities. For CBP clients,this includes access to an increased rangeof alternative investments via Quilvest.For the Quilvest Group, the deal providesan introduction to CBP’s key client baseof entrepreneurs, who may be seekingfurther investment or looking to selltheir business.

Divested assetsThe divestment of non-core assets isopening up further avenues for privateequity investment. One of the largestdeals in the European FS sector in 2010

was Advent International and BainCapital’s €2.3 billion acquisition ofWorldPay, the card payment servicesprovider, from RBS.17 As a highly cashgenerative business, WorldPay wasespecially suited to a leveraged buyout.With no direct insurance or bankingliabilities, a service business such asWorldPay would also be especiallyattractive to a private equity fund as theregulatory capital requirements arerelatively limited.

RBS’ insurance division,18 which bringstogether some of the UK’s leading brandsincluding Churchill and Direct Line,would be expected to attract privateequity interest if it were offered for salerather than IPO. Private equity’s appetitefor insurance investment was highlightedby the takeover of Brit Insurance byAchilles, a private equity consortiumformed by Apollo Global Managementand CVC Capital Partners.19

The other key area of private equity focusis loan sales, with a number of firmsknown to have set up dedicated funds toexplore the opportunities. A surveycarried out by PwC highlighted theincreasing interest, with Ireland joiningSpain, Germany and UK as a key targetmarket.20

14 Observer, 24.10.10.

15 RTE News, 26.01.11.

16 CBP media release, 09.12.10.

17 Advent International media release, 06.08.10.

18 RBS General Meeting Statement, 15.12.09.

19 Offer Document and Position Statement,published by Brit Insurance on 23.11.10.

20 PwC European Investor Survey, 14.04.11.

Other relativelyfragmented sectorsthat could attractfurther privateequity interestinclude privatebanking.


Deal considerationsThe heightened level of interest from arange of private equity funds is likely toincrease competition for key targets andmay affect prices.

In turn, institutions seeking to attractprivate equity investment will need totake account of the fact that privateequity funds will have differingrequirements to a typical strategicinvestor. The private equity fund istherefore likely to scrutinise the risks,returns, accounting and regulatoryfactors associated with the deal in adifferent way. Being able to provide theinformation and support to accommodatethis level of rigour will be crucial insuccessfully negotiating and completingthe deal.

Careful evaluation of the true cost baseof the operation being prepared for saleand the practical challenges of separationwill also be critical in attracting privateequity interest and maximisingcompetitive tension in any biddingprocess. As many of the support functionsmay be provided by shared services units,sellers may not know the true standalonecosts. They may over or underestimatethe operational expenses as the corporateservices allocated to the operation maynot be what are actually requiredfollowing the divestment. This couldpotentially result in lower proceeds fora seller than could have been the case ifproper separation planning had occurred.For buyers, identifying the differentialmay provide them with an opportunity tocome in with a more competitive bidwhile still ensuring a good return fromthe deal.

Editorial eyePrivate equity funds are targeting European FS more than everbefore, providing fresh momentum for deal activity within thesector and opening up valuable new opportunities for companiesseeking investment. Greater interaction between private equityand FS will create challenges for both parties. In turn, FSbusinesses will need to take account of the particular risk,reward and deal execution perspectives and approaches withinprivate equity.

The heightened level of interest from a rangeof private equity funds is likely to increasecompetition for key targets and may affect prices.

The ‘Data analysis’ section in this issueincludes FS deals:

• Reported by mergermarket, Reutersand Dealogic;

• Announced during the first quarter of2011, and expected to complete;

• Involving the acquisition of a >30%stake (or significant stake givingeffective control to the acquirer);

• Acquisitions of Europe-based FS targetswhere a deal value has been publiclydisclosed.

Our analysis also excludes deals that,in our view, are not ‘pure’ FS dealsinvolving corporate entities or entireoperations, e.g. real estate deals andsales/purchases of asset portfolios wherethe disclosed deal value represents thevalue of assets sold.

Methodology



The main areas of our services are:

• lead advisory corporate finance;

• deal structuring, drawing onaccounting, regulation and taxrequirements;

• due diligence: business, financial andoperational;

• business and asset valuations andfairness opinions;

• loan portfolio advisory servicesincluding performance analysis, duediligence and valuation;

• post-merger integration: synergyassessments, planning and projectmanagement;

• human resource and pension schemeadvice.

For more information about theseservices or if you have any otherenquiries, please contact:

Nick [email protected]

Fredrik [email protected]

About PwCM&A advisory services in thefinancial services sector

PwC is a leading consulting and accounting adviser for M&A in the FS sector. Through our Corporate Finance,Strategy, Structuring, Transaction Services, Valuation, Consulting, Human Resource and Tax practices, we offer afull suite of M&A advisory services.

About this reportIn addition to the named authors of the articles, the main authors of, andeditorial team for, this report were Nick Page, a partner and Fredrik Johansson,a director in PwC (UK) Transaction Services – Financial Services team inLondon. Other contributions were made by Andrew Mills of Insight FinancialResearch and Maya Bhatti, Bridget Hallahane, Katrina Hallpike, Valerie Martin,Caroline Nurse and Antoine Royer of PwC (UK).

Geared up for growth?We can help you take advantage of the emerging opportunities forexpansion and acquisition. Find out more about our M&A advisory services at

www.pwc.com/financialservices

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon theinformation contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy orcompleteness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability,responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for anydecision based on it.

For further information on the Global FS M&A marketing programme or for additional copies please contact Maya Bhatti, Global Financial Services Marketing, PwC (UK)on +44 207 213 2302 or at [email protected]

www.pwc.com/financialservices© 2011 PwC. All rights reserved. Not for further distribution without the permission of PwC. “PwC” refers to the network of member firms of PricewaterhouseCoopersInternational Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act asagent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of itsmember firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions ofany other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.

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