Financial institutions M&A: Sector trends - February 2020: Brokers/Corporate Finance

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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

  • Consistent; upward

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)

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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