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Financial services M&A down 50% from 2021 peak

Feb 20, 2024
Data: McKinsey; Chart: Axios Visuals
Data: McKinsey; Chart: Axios Visuals

M&A activity in the financial services sector continued to decline in 2023, with both the number of deals and total transaction value down by more than 50% off 2021 highs, according to McKinsey's annual M&A report.

Why it matters: M&A activity in 2023 was driven by a desire among financial services companies to either scale up or acquire troubled assets at a discount.

By the numbers: According to McKinsey, there were 544 M&A deals in the financial services industry in 2023, down from 916 a year earlier and 1,161 two years prior.

  • But the average deal size has increased, with the total value of all transactions for the year at $255 billion, compared with $354 billion in 2022 and $519 billion in 2021.

State of play: The report notes that in 2023, "more than half of the 40 largest deals were meant to rebalance portfolios or acquire assets of failing banks."

  • Of those, 40% were divestments, carve-outs or geographic exits, with another 18% related to the acquisition of failing U.S. or European bank assets.
  • About 20% of deals were "scale transactions meant to improve efficiencies and top-line growth."
  • The final 22% of deals were done to acquire products, tech or talent.

Between the lines: With so much focus on scale, venture-backed startups and fintech challengers may struggle to be a part of the M&A picture.

What they're saying: "Many fintechs may look like great targets for banks seeking to build capabilities, especially in technology and talent, and the sharp drop in fintech valuations in 2022 might appear to signal that the subsector is ripe for transactions," the report authors note.

  • "In our experience, however, most banking leaders still view fintechs as expensive and lacking clear paths to profitability, and remain skeptical about the goodwill these acquisitions could create."

Of note: Major deals in 2023 included UBS' purchase of Credit Suisse, JP Morgan Chase's deal for First Republic, Nasdaq's acquisition of Adenza Group, Reliance's spinoff of Jio Financial Services, and FIS' sale of a 55% stake in Worldpay to GTCR.

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