Financial Services M&A update: Q2 2017
The Financial Services industry continues to increase its focus on technology, from cryptocurrency to artificial intelligence, bringing new opportunities for growth as seen in robust compound annual growth rate (CAGR) and bank M&A pricing increases. This Financial Services M&A update provides Deloitte Corporate Finance LLC insights and market data analysis that shed light on M&A trends in the Financial Services industry.
Financial Services trends
- Cryptocurrency growth1: Cryptocurrencies, a form of encrypted digital payment, are experiencing tremendous growth. The cryptocurrency market cap grew 687 percent to $100 billion from July 1, 2016 to July 1, 2017. Additionally, an IBM report published in August 2016 indicates that 15 percent of surveyed global banks will implement blockchain technology, a system used for cryptocurrency payments, by the end of 2017.
- Analytics on the rise2: Accenture reports that 35 percent of banking revenues will be at risk by 2020 due to technological disruptions in the financial sector. Analytics can assist with boosting traditional P&L levers, finding new sources of growth, and delivering digital banking capabilities. The Big Data and Business Analytics market is expected to grow at an 11.7 percent CAGR through 2020.
- Artificial intelligence and machine learning3: Artificial intelligence is becoming commonplace in the banking sector. Banks are using products like chatbots, algorithmic trading, robo-advisors, and cognitive computing to assist in their business operations and optimize their customer satisfaction. Global spending on AI will see significant corporate investment over the coming years, experiencing a 54.4 percent CAGR through 2020.
- M&A pricing increases4: Valuation for bank M&A has increased in the wake of the US presidential election. As of June 19, average deal value was 31 percent higher than the average in mid-2016. Moreover, the average price to tangible book value metric increased from 129 percent to 166 percent. While pricing has increased for bank M&A, deal volume in the sector has decreased 8.3 percent since 2016.
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1 “CryptoCurrency market capitalizations,” Coin Market Cap. Accessed July 6, 2017. Data as of July 1, 2017.
2 “Predictable disruption,” Accenture. Accessed July 6, 2017. Data as of 2016.
3 “Worldwide spending on cognitive and artificial intelligence systems,” International Data Corporation. Accessed July 7, 2017. Data as of April 3, 2017.
4 “M&A at midyear: Lackluster volume but attention-getting prices,” American Banker. Accessed July 21, 2017. Data as of June 29, 2017.