BY Fraser Tennant
Mergers and acquisitions (M&A) are predicted to rise over the next few years, as banks seek to reduce costs in the short term, refocus core business for the long term and transform operating models, according to new analysis by Kearney.
In ‘Life after COVID-19: building a new banking landscape through M&A’, Kearney predicts that, post-crisis, banks will likely find M&A as the most efficient means to radically reshape their business portfolio – for both buyers and sellers – to achieve the required amount of cost reduction and transformation to stay afloat.
The analysis also reveals that the market is likely to see changes to operating models, with banks refocusing their core business offering. Some may seek to divest non-essential assets where they are not able to maintain competitive edge in the mid-term, while others might opt to source new capabilities, such as analytics and artificial intelligence – further bolstering and scaling up their core business.
“Retail banks will be feeling the effects of this current crisis for the next two to three years, so never has there been a better opportunity for banks to reshape their cost base and revise their long-term outlook,” said Simon Kent, partner and global head of financial services at Kearney. “Analysis of previous market crashes indicate that change will be needed for most European retail banks, requiring bold decisions and quick action. After the 2008 crash, domestic M&A was a route to success, with 80 percent of banks outperforming their peers after such a transaction.”
In addition to a rise in M&A, Kearney also predict a rise in strategic partnerships, particularly across smaller banks and FinTechs, as they look to gain reach quickly and efficiently. Positive collaborations with these smaller enterprises, notes Kearney, will also allow larger legacy banks to leverage capabilities off others, either through back-end operations, technology platforms, or shared supplier networks.
“For a successful merger, banks will need to ensure strong due diligence and realistic expectations – setting out a good plan for integrating both entities,” said Mr Kent. “They will need to take extra care in communication to all stakeholders, such as clients, employees and investors ensuring cultures are aligned and employee motivation and retention remains strong.”
Mr Kent concluded: “While the COVID crisis in Europe has subsided, it is far from over, but the resulting surge in M&A activity will present a multitude of opportunities for the years ahead creating a better and strong market in the long run.”
Report: Life after COVID-19: building a new banking landscape through M&A