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European financial services M&A activity down by 40% in Q1 2012

Research from PwC has found a decrease in European financial services M&A activity during the first quarter of 2012. M&A activity fell by 40% to EUR9.7bn in Q1 2012 from EUR16.5bn in Q4 2011. This is also 1% down on the comparable figure of EUR9.8bn recorded in the 1st quarter of 2011.

The figures for this quarter are distorted by the very large deal by Royal Bank of Scotland which sold RBS Aviation Capital to Sumitomo Mitsui for EUR5.8bn. Without this deal, the quarterly deals figure would have been only EUR3.9bn – one of the lowest quarterly deal figures of the last nine years. There were only four deals valued between EUR250m and EUR1bn, compared with eight in Q4 2011 and six in Q1 2011.

The decline in small to mid-market financial services M&A activity continues, which is indicative of ongoing market turmoil, the uncertain economic climate and limited availability of debt finance.

Nick Page (pictured), Transaction Services partner at PwC, says: “Signals from the M&A market continue to be mixed. European financial services deal values in the first quarter of 2012 were down on the final quarter of 2011, though it was unlikely that the flurry of activity seen at the end of 2011 would be sustained.

“What was perhaps most exceptional was the low level of banking deals in Q1 2012. The total value of banking transactions was EUR1.9bn, much of which came from CaixaBank’s merger with local counterpart Banca Civica, valued at EUR977m. This compares with an average quarterly deal value of more than EUR6bn in the banking sector over the past two years.”

Fredrik Johansson, Transaction Services director at PwC, says: “While concerns over the eurozone crisis, the outlook for the European economy and the impact of incoming regulation are making some buyers reluctant to engage in deal activity, these very challenges also make the impetus and rationale for M&A all the more pressing. As growth slows and tougher capital requirements come into play, financial services businesses are facing increasing pressure to shore up their balance sheets, seek out new sources of growth and divest non-core operations.

“As uncertainty and risk-aversion on the one side come up against the pressure for restructuring and strategic reorientation on the other, the fluctuations in quarterly deal values are likely to persist for some time to come.”

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