M&A Activity Heats Up as Firms Pursue ‘Transformational’ Deals

A takeover deal was announced earlier this month which is perhaps the clearest sign yet of the sea change underway in the financial sector.

The news that Aberdeen Asset Management has agreed to buy Parmenion Capital Partners, a platform that creates risk-graded model portfolios for financial advisers, was greeted with a lot of interest within the industry. This is because the Scottish asset manager’s chief executive, Martin Gilbert, specifically named the group’s digital ambitions as the key driver of the deal.

Aberdeen says the takeover will allow it to fast track its digital innovation and services across more distribution channels.

The FTSE 100-listed fund group said it wants to “capitalise on advancements in financial technology systems and to become a leader in using technology to provide investors with portfolios appropriate to their needs”.

Bristol-based Parmenion is fast becoming a leading light in the fintech space – it made this year’s FinTech50, which its creators describe as a list of the “50 hottest European businesses firms who are transforming financial services”, as voted for by a panel of industry experts.

Gilbert said: “This acquisition ensures Aberdeen is at the forefront of the digital revolution within asset management and augments our strategic aim to grow our Investment Solutions business.”

Financial services will no doubt see a lot more of these kinds of takeovers in the future, with the bigger players looking to snap up the smaller innovators which are carving out their own niche in the marketplace.

A report from Ernst & Young entitled Global Financial Services M&A Themes 2015 suggests this is a trend which will be seen across the industry this year, in banking and capital markets, as well as among insurers, wealth managers and asset managers, as disruptive innovation drives global dealmaking.

The report found that, following three years of falling M&A activity in the global financial services sector, there was a 21% increase in the number of deals in 2014 compared to the previous year. However, the number of large, ‘transformational’ deals fell year on year. EY’s Capital Confidence Barometer published in April 2015 found 73% of executives who are considering deals are eyeing innovative investments rather than bolt-on or transformative transactions.

Pip McCrostie, global vice chair for Transaction Advisory Services at EY, said: “After a half-decade of stagnation, we are seeing the bold beginnings of a new kind of M&A market – one marked by innovation complexity, and disruptive change.”

For banks, the focus is likely to be on acquiring businesses which can give them a competitive edge in game-changing technologies, particularly in the areas of big data and analytics, mobile and wireless, payments, risk management, security, and compliance. EY says it expects companies to acquire players who can offer them a head start in this race.

Asset managers will be looking for better ways to service the needs of their clients through new technology and geographical or product expansion, as demonstrated by the Aberdeen-Parmenion deal, and EY forecasts more transaction activity in this space.
Insurers are also increasingly focused on digital, which is driving fundamental changes across the value chain in this part of the market.

“Large institutions will seek to grow, organically and inorganically, their fintech footprint so that they may continue to deliver growth to investors and modernise their business models,” the EY report says.

As the financial technology sector continues to emerge as “the new frontier for growth”, M&A activity looks set to become increasingly dynamic.