Financial institutions M&A sector trends: brokers/corporate finance — H2 2019 and outlook for 2020
Household names turn to M&A as market disruption from fintechs offering commission-free trading continues.
Overview
CURRENT MARKET
WE ARE SEEING
- Household names opt for growth through:
- Inorganic strategies (e.g., Rothschild's acquisition of Livingstone's UK business and equity investment in Redburn)
- Organic strategies (e.g., BAML's Emerging Growth & Regional Coverage division, UBS Private Capital Markets division and ICAP's Digital Asset Markets division)
- Flurry of new entrants offering user-friendly online stock trading services (e.g., Lunar, Robinhood, Freetrade, Revolut, etc.)
KEY DRIVERS/CHALLENGES
- Trade consolidators:
- Experiencing declining revenues—pressure from unbundling of equity research costs under MiFID II, in already over-brokered financial centres
- Seeking scale and scope/specialist industry expertise
- High buyer appetite:
- US investors leveraging strength of the US dollar (e.g., INTL FCStone's acquisition of Exotix)
- Asian investors seeking diversification (e.g., Concordia's 49.9% stake in Stormharbour Securities and Bank of China's acquisition of Goodbody)
- Pressure from commission-free trading offerings:
- Availability of growth funding from financial sponsors (e.g., Draper Esprit's investment in Freetrade and Velocity Capital's investment in BUX)
- Tech-savvy customers respond to user-friendly on-demand access to global markets
TRENDS TO WATCH
- Brokers going head-to-head with McKinsey, Bain and BCG in their search for new research customers
- Recalibration of mid-market investment banking business models—focus on private capital solutions, industry/sector specialisms and online offerings
OUR M&A FORECAST
Market consolidation is likely to continue in the short term as brokers recalibrate their offerings to retain market share, in a sector beleaguered by transformational regulation, fintech disruption and unfavourable market conditions.
Publicly reported deals & situations
Buyer appetite
- INTL FCStone: Acquisition of Exotix Partners (December 2019)
- Concordia Financial Group: Acquisition of 49.9% of StormHarbour Securities (November 2019)
- Bank of China: Acquisition of Goodbody Stockbrokers (November 2019)
- Renta 4 Banco: Acquisition of BNP Paribas Personal Investors (September 2019)
Search for alternative revenue
Organic:
- BAML: Launch of BAML Emerging Growth & Regional Coverage (July 2019)
- UBS: Launch of UBS Private Capital Markets (July 2019)
- ICAP: Launch of Digital Asset Markets (June 2019)
Inorganic:
- Dierickx Leys: Acquisition of Lawaisse (December 2019)
- TP ICAP: Acquisition of Louis Capital (December 2019)
- flatex Bank: Acquisition of DeGiro (December 2019)
- GTS: Acquisition of Barclays' equities automated options trading assets (December 2019)
- BNP Paribas Securities Services: Acquisition of strategic stake in AssetMetrix (November 2019)
- Houlihan Lokey: Acquisition of Fidentiis Capital (November 2019)
- Rothschild: Acquisition of Livingstone's UK business (October 2019)
- Arkios Italy: Acquisition of 51% of Integrae Sim (October 2019)
- Banca Valsabbina: Acquisition of 26% of Integrae Sim (October 2019)
- Rothschild: Acquisition of minority stake in Redburn (July 2019)
Mounting pressure:
- Lunar (Online trading): Launch of online stock trading feature (December 2019)
- Robinhood (Online trading): Launch of commission-free stock trading in the UK (November 2019)
- Freetrade (Zero-commission stock trading): Successful US$15 million Series A funding round, led by Draper Esprit (October 2019)
- Revolut (Mobile trading): Launch of commission-free stock trading (August 2019)
- BUX (Mobile trading): Successful US$12.5 million Venture funding round, led by Velocity Capital and Holtzbrinck Ventures (June 2019)
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