The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed in 2010, aims to end “too big to fail” situations and protect taxpayers’ money from being used for bailouts. Basel III is part three of a global regulatory standard on banks set by the Basel Committee on Banking Supervision. This regulation includes capital requirements and regular stress tests to help prevent a financial crisis similar to the one in 2008. Lehon and Mizra believe that “[t]his has made banks think strategically about how they manage liquidity pools and which businesses are core versus non-core from a capital and liquidity perspective.”
Another key factor in the slowdown of banking M&A activity is the European Sovereign debt crisis. A PwC report found that European banks are beginning to divest non-core businesses in order to recapitalize and generate enough cash to help sustain themselves during the debt crisis. Although actual European M&A activity is unlikely to add to deal volumes, divestitures will create opportunities for acquisitions by other firms.
A third factor, volatility, is playing an interesting role in M&A activity. The volatility of the global markets is creating opportunities, even in such an unsteady time. A report by American Appraisal found that although high profile deals are being rejected to due uncertain economic conditions, these uncertain conditions may create other opportunities for smaller M&A deals. Large companies are beginning to divest their non-core businesses and streamline in response to market volatility, increasing the availability of high-quality targets at reasonable costs. That said, volatility is also preventing deals from closing due to lack of investor confidence. So it could have a dual effect on M&A activity.
Although this article focuses on the banking sector, M&A happens across all industries. It’s a major component of business that helps drive growth and increase efficiency. Although today’s global economic conditions are not suitable for the level of M&A activity seen in the past, new opportunities are still constantly emerging – and it’s up to deal-makers to find them.
- Financial Times “Harsh M&A landscape hits investment banks”
- Merrill DataSite “Financial Services M&A – the outlook for the banking sector”
- Merrill DataSite “Could the need to consolidate drive M&A in US banking sector?”
- Deloitte “Financial Services M&A in 2012: A cross-sector outlook”
- Globe and Mail “Blockbuster bank deals thing of the past, RBC head says”
- Globe and Mail “Economy Lab: Canadian banks now at door of exclusive club”
- M&A Alerts “M&A Banking Sector: Too Big to Fail in North America”
- Investopedia “Mergers and Acquisitions: Introduction”
- Investopedia “Biggest Merger and Acquisition Disasters”
- Mother Jones “How Banks Got Too Big to Fail”
- PwC “Balancing uncertainty and opportunity: 2012 US financial services M&A insights” March 2012 report
- PwC “Canadian M&A Retrospective and 2012 Outlook” January 2012 report
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