Europe’s banks turn to private equity for M&A without tears
Lenders have been snapping up businesses formerly owned by buyout firms at a record rate
How can banks in Europe get mergers done when politicians get so worked up over potential deals? Executives have been grappling with the question after lenders like UniCredit and BBVA ran into roadblocks. One potential answer: find sellers even less popular than the banks themselves.
Private equity, for example. European banks have been snapping up businesses formerly owned by buyout firms at a record rate, according to Lex analysis of Bloomberg data, with more than $15bn of acquisitions this year. Several were lenders that had been cleaned up after coming close to collapse in the aftermath of financial crises in the US and Eurozone.
The trend has brought benefits for both sides. Private equity firms have been under pressure to return cash to their backers after a long period of weak exit volumes; selling in a single swoop to “strategic” buyers — meaning other banks — beats waiting for an IPO and gradual selldown.
The boom is helping offset a slow recovery elsewhere. Financial services, including insurance, accounted for about 20 per cent of the total value of European private equity exits this year, according to data from Preqin, more than twice the average over the past 10 years.
Banks, meanwhile, have plenty of spare cash they’re keen to spend, and private equity-backed companies seem to come with fewer complications. For one thing, negotiating with a handful of institutions is simpler than trying to win over thousands of truculent retail investors. Compare BBVA’s failed bid for Sabadell with ABN Amro’s straightforward $1bn purchase of NIBC from Blackstone.
Nor does the public much care if foreign banks buy local peers that were already in the grip of faraway financiers. Look at the muted reaction when France’s BPCE bought Portuguese lender Novo Banco, versus the clamour caused by UniCredit’s interest in German listed national champion Commerzbank.
Bank bosses who hope to hit the acquisition trail are, of course, constrained by the limited supply of good-sized lenders in private equity portfolios. Still, there are signs the trend should at least continue into next year. Cerberus-backed Hamburg Commercial Bank is one reportedly considering a multibillion-euro sale. Loosen definitions and options increase — Warburg Pincus and Permira have considered a £2.5bn sale of wealth manager Evelyn Partners, for example.
Deals of this size won’t provide the sort of transformative changes to the banking sector that consolidation cheerleaders like former central bank chief Mario Draghi hope to see. But they should get the ball rolling. Once investors, regulators and politicians see that banks can successfully manage a few smaller deals, bigger ones ought to follow.