How Financial Services M&A Is Responding to the 2023 Bank Shock

Despite challenging market conditions, 2022 was a record-setting year for mergers and acquisitions (M&A) value in North America. With its broad reach and operational importance, the financial services sector played a large role in driving deal volume even as other industries saw a sharp decline in activity.

As revealed in Financial Services M&A in 2023, a newly published report from SS&C Intralinks produced in partnership with PitchBook, M&A dealmaking in even robust sectors like Financial Services can still be affected by changing market conditions and unanticipated events, such as the recent collapse of several banks.

In the ongoing banking shock that has already seen the collapse of Silicon Valley Bank (SVB), Signature, Credit Suisse and First Republic, M&A dealmakers and private equity (PE) firms are trying to understand how this significant stress in the banking sector will affect the dealmaking landscape in 2023.

An unexpected series of events

At the start of 2023, the impact of the fragile global economy on the banking sector was thought to be well known. Yet, the industry was taken by surprise when the aforementioned financial institutions quickly succumbed to bank runs and ultimately failed. Facing a similar crisis of depositor confidence, Credit Suisse was rescued by competitor UBS in a deal hastily organized by Swiss authorities, while JPMorgan Chase swooped in to acquire the ailing First Republic Bank.

These unexpected events sent shockwaves through the banking sector as investors dumped their bank stocks and depositors rushed to withdraw funds.

Whether the situation proves to be a true banking crisis or short-term sentiment contagion, it will likely influence M&A activity through several mechanisms.

Macro pressure on M&A activity

The macro environment that contributed to banking collapses thus far 2023 has impacted buyouts and leveraged buyouts (LBOs) in the North American financial services sector. Following a peak in 2021, PitchBook data shows a significant decrease in both buyout/LBO deal value and share of total M&A activity.

Dealmakers are anxiously hoping that rate hikes will end in 2023, bringing down acquisition costs with them. But absent economic indicators of lower inflation, the banking crisis alone may not be enough to end this period of tightening monetary policy.

Distressed assets and new opportunities

Consolidation, however, may see an uptick in 2023 as strategic buyers look to Fintech to expand their technical capabilities and improve customer experiences. It is a proven strategy that allows major players to maintain a diverse product line, keep pace with digital transformation and, in the current environment, meet the changing needs of a stressed banking system.

Private equity (PE) involvement in Financial Services may also expand as distressed companies provide an opportunity to enter the industry at a discount. In fact, several PE firms took an immediate interest in the bidding process for SVB’s loan book following the bank’s collapse.

What’s next?

As we move beyond the initial fallout from recent bank collapses, it will be interesting to see how economic and regulatory factors coalesce.

Financial Services M&A in 2023 reveals essential data and insights to help market participants better understand the deal landscape and identify new opportunities.

Click here to read the report.