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European financial services M&A at lowest level for six years

2009 saw a steep decline in European financial services M&A activity with values, excluding government led deals, hitting their lowest levels for six years, according to a report by PricewaterhouseCoopers.

By contrast, the outlook for increased deal activity in 2010 is positive and the level of private sector activity is expected to increase significantly.

Nick Page (pictured), partner, PricewaterhouseCoopers, says: “The level of deal activity in the European financial services market plummeted to a six year low in 2009. However, a restructuring-led wave of deal activity has started to gather momentum across the financial services industry and the private sector is predicted to see a resurgence in M&A activity through 2010."

According to the latest European Financial Services M&A Insights report from PwC, just EUR80bn worth of deals was announced during 2009, compared with EUR178bn for the whole of 2008 and EUR208bn in 2007.

Government involvement cooled significantly throughout 2009 and with the exclusion of government activity, the figures would be just EUR41bn for 2009 compared with EUR70bn for all of 2008 and lower than the EUR45bn total in 2004.

Despite the absolute decline in the value of transactions, private sector deals accounted for a growing proportion of the total. Government-led transactions declined to 24 per cent of total deal value in the second half of 2009, compared with 58 per cent for the first half. Cross border activity as a proportion of private sector deals increased to 65 per cent from 41 per cent in 2008.

As industry restructuring gathers pace, M&A activity will begin to recover during 2010, the report says. Fifty nine per cent of deal professionals surveyed felt that financial institutions will be the most prominent bidders for financial services targets during 2010 and into 2011.

Seventy three per cent of respondents expect appetite for large financial services deals to increase during the year. This represents a marked change in optimism from 2008 when 42 per cent gave a positive response to the same question.

Page says private equity will continue to take part in European financial services M&A primarily in niche areas.

“Private equity could play a role in carve-outs during 2010, particularly where the businesses have a solid funding structure,” he adds.

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