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M&A-Fueled ‘Rapid Transformation’ Is Coming to Financial Services

As pressure mounts from industry disruptors and the regulatory environment tightens, asset managers will have to transform their businesses to keep up.

Not only has the financial services industry, particularly private equity, come to dominate M&A, the largest alternative and traditional asset managers are transforming their own businesses with huge transactions.

Take the most recent insights from PitchBook. While the total number and value of deals decreased, the financial sector — including private equity — played a “pivotal role” in the M&A activity story in the first few months of 2022. PitchBook reported that 501 financial services deals worth an aggregate $102.8 billion closed in the first quarter. That’s not to say financial services wasn’t hit by a slowdown. Like many other industries, this marked a year-over-year decrease of 27.2 percent in the number of deals and a 13.6 percent decline in value, respectively, according to a report released this week from PitchBook analysts Wylie Fernyhough, Rebecca Springer, Dominick Mondesir, and Jinny Choi. 

Meanwhile, private equity accounted for many of the mega-deals in the quarter, including Apollo Global Management's $7.2 billion acquisition of Athene Holding, a transaction that has transformed Apollo itself. 

“PE continues to account for a swelling proportion of deal activity, including a significant percentage of the largest deals,” the analysts wrote. “Eight of the 20 largest deals to close in the quarter were bought by financial sponsors.”

Global M&A deal activity split in the first quarter of 2022. Previously negotiated deals closed in the first part of the quarter as a sort of spill-over effect from 2021’s “fervent activity.” However, with Russia’s invasion of Ukraine and increasing interest rates and inflation, dealmakers held off on striking new deals in the quarter. In North America, around 4,739 deals closed for a total of $611.3 billion, signaling a nearly 20 percent decrease in both deal count and value from the last quarter of 2021. 

Additionally, the war between Russia and Ukraine temporarily froze the financial markets, which forced banks to hold billions of dollars in loans that were meant to be used to fund leveraged buyouts, the report said. Because PE firms couldn’t access the LBO cash from the markets, they turned to private debt providers to keep deal momentum going, resulting in more money moving away from big banks. 

“This caused PE firms to turn to private debt providers to finance deals, further taking market share from the big banks,” the analysts wrote. 

PitchBook authors argued that after the first quarter of 2021, the financial services industry is now primed for a change. As pressure mounts from industry disruptors like fintech platforms and the regulatory environment tightens, PitchBook analysts wrote that the financial services sector is “primed for rapid transformation.” 

“Acquiring new capabilities, accelerating digital transformations, driving scale, and performing restructurings is at the heart of financial services (FS) M&A, as asset managers, banks, and insurers seek to boost top lines, heighten efficiency, grow margins, and optimize cost structures,” they wrote. “In addition, quickening digitalization, a more hawkish policy environment, and the growing trend toward embedded finance in areas such as buy-now-pay-later will contribute to the sector’s fast changes.” 

While overall global M&A activity dipped in the first quarter of 2022, activity levels remained relatively on par with levels over the last five years — an occurrence that PitchBook authors said demonstrates that dealmakers are persisting despite market volatility. 

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