Mergers and acquisitions boom among UK financial services firms

As many as 83 mergers and acquisitions (M&A) deals valued at £12 billion were conducted in the financial services sector in the first half of 2018, a new study carried out by accountancy firm EY has revealed.

In its report, the Big Four accountancy practice found that the current boom in M&A was the result of many firms being driven to complete deals, either to take advantage of the historically low interest rates or because strong competition in the industry made a sale more likely.

Gavin Jordan, UK Financial Services Transactions Leader at EY, described the level of UK M&A activity as “encouraging”.

He said: “Over recent months alone, deals and discussions, particularly among UK challenger and digital banks, have evidenced a push for further consolidation across the segment.”

One of the largest deals in the first six months of 2018 was the sale of challenger bank Virgin Money to Clydesdale and Yorkshire Banking Group for £1.7 billion.

Reflecting on the study and the recent trends, David Madden, an analyst at CMC Markets, said that the Virgin Money and Clydesdale merger, was “sort of out of necessity,” adding: “If you focus on the retail banking sector, your RBS, Lloyds and Barclays, they are big organisations, you are in a situation where you will find it difficult.

“Interest rates are low and you are up against well-established, massive high street organisation, so rather than compete with each, other you merge.”

While a low interest rate environment makes it more difficult for financial institutions to make money it does makes debt cheaper – a factor that experts suggest strongly encourages transactions.