Global Financial Services M&A and Capital Markets H1’24 Review

The global economy has been facing various challenges, including ongoing adjustments to rising interest rates and increased debt obligations for consumers and businesses. “Higher for longer” interest rates have caused property values to decline, which in turn has severely impacted the banks and borrowers. Geopolitical risks are high, as there remains policy uncertainty due to upcoming global elections. All these factors are causing volatility in the financial market and thereby creates an environment of uncertainty regarding the future of the global economy. As a result of which, deal activity, which has shown strong signs of recovery in the first half, might see a relatively sluggish growth for the remainder of 2024 with investors and deal makers turning cautious.

Furthermore, the financial services (FS) sector is subject to other industry-specific issues, such as pressure on costs and asset quality, as well as uncertainty surrounding global central banks' interest rate policies. These factors collectively put a burden on the profitability and equity of FS businesses. In such complex scenario M&A should continue to be an integral part of the transformation process across the sub-sectors with focus on enhancing capabilities and driving future growth in the given current socioeconomic climate were organic growth face various headwinds. Dealmakers are overall mostly optimistic about the medium-term M&A picture which is expected to remain profitable and relevant due to pressures induced by digitalization, questions on sustainability and current workforce challenges.

We anticipate that strategic purchasers will carry on with their practice of making bolt-on, lower-value purchases in H2’24 to enhance their current product and geographic portfolios. In the FinTech industry we expect strategic buyers' venture arms will continue to take minority investments in FinTech companies.

The following key developments had a strong bearing on M&A and Capital markets’ activities across the global financial services market during H1’24:

• Companies are exploring foreign investments to bring in cutting-edge technology, global best practices, increased product offerings and improved access to capital for the next level of growth.
• While several investment grade companies borrowed to seek high-value targets throughout the quarters, numerous bigger companies took advantage of attractive valuations to finance huge deals.
• Structured deals, which include spin-offs, separation, and carve-out transactions, also drove volumes.
• While macroeconomic conditions and geopolitical tensions remain challenging, recent gains in the financial markets and positive signals about interest rates from central banks revived investor confidence.
• Spotlight on divestitures of non-core assets as businesses attempted to strengthen their balance sheets and make their business models more resilient.
• The focus seems to be shifting to long-term planning and M&A as a way of addressing strategic issues in the sector like market access, economies of scale, and technology debt as inflation and interest rates come under control, leading to a return of investor confidence and stability to banking markets.