According to Johnston Carmichael, over 90% of financial services firms are considering mergers and acquisitions (M&A) as a means of growth.
The firm’s 2024 Financial Services Survey revealed that more than two in five respondents see M&A as a major component of their growth strategy, with 52% expressing interest if the right opportunity arises.
Only 4% indicated they were not looking to engage in M&A activities. The survey, which included responses from around 300 senior professionals in retail banking, insurance, wealth, and private asset management, comes at a time of significant transformation in the sector.
This transformation is driven by digital advancements and ongoing fiscal and regulatory changes. Motivations for pursuing M&A include building economies of scale—either by expanding balances or increasing customer numbers (46%)—and innovation, particularly through acquiring new technologies, products, or capabilities (44%).
Ewen Fleming, partner and head of financial services at Johnston Carmichael, stated: “Our survey findings reflect some significant shifts in the financial services marketplace, yet the pre-eminence of the big 6 in retail banking remains, as the scale is seen as a vital factor in achieving success.”
He continued: “The reputation of our high street banks suffered greatly following the financial crash losing the trust of government, media and consumers. Additionally, they faced new competition with the growth of digital challengers offering more convenient products and services.”
“Their return to prominence during the pandemic, when they operated many of the government’s emergency loan schemes designed to keep businesses afloat, has been bolstered too by their significant investment in new technology. By copying their digital competitors, and in some cases acquiring them, they have also become ‘digital first’ providers and diminished the difference between them and their rivals.”
Mr. Fleming further noted: “Now we are seeing further consolidation across retail banking, including Nationwide’s acquisition of Virgin Money and Coventry Building Society looking to buy The Co-operative Bank, and others are likely to follow.” “Firms are looking for growth and to enhance their competitive positioning by bringing in new capabilities and acquire customers and their balances.”
“However, it remains to be seen if customers will be happy for their accounts to be operated by a brand they did not choose.”
The survey also highlights that while there is enthusiasm for M&A, businesses are aware of the challenges involved. Key concerns before a deal include due diligence across commercial, operational, and technological aspects, as well as designing a target operating model that realizes the deal’s forecasted benefits. Post-deal challenges include technology integration—highlighted by 40% of respondents—as well as integration planning, program delivery, governance and compliance, and cultural alignment cited by 30-40% of respondents.
Mr. Fleming added: “With funding rounds by fintechs becoming more difficult, businesses that offer something truly unique in the marketplace have the best chance of successfully scaling and operating as profitable independent brands.”
