Financial services companies are doing deals to access new technologies and products

Financial services organizations are working to remain competitive in a complex environment. One way in which FS companies are taking action is through transactions. According to EY’s15th Capital Confidence Barometer, nearly half (48%) expect to pursue M&A in the next 12 months..

Dynamic partnerships

The Barometer, a regular survey of senior executives from large companies around the world conducted by the Economist Intelligence Unit, finds that FS companies now prefer as a strategy JVs and alliances (22%) over acquisitions (20%). Establishing new dynamic partnerships with third parties, including Fintech firms will be vital to success.

My advice is to look for opportunities to bring key innovators into the fold. Investing in venture capital funds can help FS companies gain a sight line into start-up disruption ecosystems. Acquire or partner with start-up innovation, tech and strategy, to drive change internally. Fintechs can help more established players remedy the “legacy” spaghetti – complex historical tech or processes – or introduce new blank-page paradigms such as blockchain innovation. Banks, traders, exchanges and regulators are involved in many pilot projects and multiple industry consortia have launched to study blockchain’s potential uses.

“Glocal”

Are you “glocal” (global-local)? The challenges that come with operating globally with local governments, regulations, capital flows and market dynamics show no signs of abating. Although 80% of FS respondents to our Barometer survey see the global economy as stable or improving, FS companies admit to being challenged by market uncertainty and political instability, such as Brexit. This may explain why Europe doesn’t appear to be a key investment priority for financial services executives in the next 12 months.

Think about distribution and transactions differently

Executives cite industry regulation and advances in technology/digitalization as most disruptive to their core business. The best way to face the uncertainties is to connect the dots around the human experience in order to position products, people, tech and services in adjacent places. Financial services may be embedded, for example, in the automotive and health care industries. FS companies are also thinking about their transactions differently. Nearly half (47%) of respondents would look outside their sector and almost a quarter (24%) within their sector to acquire new technology or new products, for example.

Walk away if the deal isn’t right

Although positive about dealmaking, FS companies are willing to walk away if the deal isn’t right. Almost four-fifths (79%) indicate that they have failed to complete a planned acquisition in the past 12 months. Of those, one-third (34%) cite due diligence issues as the deciding factor. For 35%, underestimating the challenges of IT integration is the number one reason for completed deals not living up to expectations.

You can click here to read more on how FS companies are turning to acquisitions to access new technologies and products.

The views expressed in this blog are not necessarily those of EY.

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Nadine Mirchandani – Americas Financial Services Leader, Transaction Advisory Services