The financial industry is an ever-evolving industry dealing with constant regulatory adjustments, scrutiny, competition, etc. The financial industry is also one of the first industries to look toward for a current health report on an economy as well. Numerous factors impact the financial sector, such as changing customer behaviors, macroeconomic cycles, data protection legislation, political climate, etc.
M&A activity in the banking and finance industry has been on the rise in the last few years. This trend looks to continue as we head towards the end of 2019, and begin to take a peek around the corner in 2020.
Key Industry Trends
Look for M&A activity in the finance industry to continue to place a major focus on improving technology, product offerings, and overall customer satisfaction.
Debt Financing and Interest Rates
Lastly, M&A transactions typically involve some form of debt financing, which a lot of times will make up the majority of the cash at close. Interest, which is the cost to borrow money, can severely impact an M&A transaction from a funding perspective, and certainly an economy for that matter. Though they are trending higher, interest rates remain reasonable for the time being, and not far above historical standards.
It appears a significant portion of private equity firms are financing a large percentage of their M&A transactions with nonbank debt. In comparison, other groups are using cash reserves, which end up lowering the dependency on debt financing. A movement in valuations, rates, and funding could cause a shift either way in M&A activity, though for now, the environment appears stable. Should interest rates continue to rise, eventually causing equity market volatility, one would assume this would force buyers to focus on consolidating their strategic positions more than pursuing opportunistic acquisitions.
Neal Wilkerson
Senior Analyst
Benchmark International
T: +1 615 924 8607
E: DWilkerson@benchmarkcorporate.com
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