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The need for transformation is sparking optimism in financial services M&A
The financial services sector continues to undergo significant transformation as traditional players need to digitise and innovate to keep pace with fintech and insurtech challengers. Dealmaking headwinds persist along with economic and geopolitical uncertainties, but improving financial market conditions and a strategic shift towards smaller, transformational deals point to a more dynamic M&A landscape ahead. And what about the situation in Switzerland following the takeover of Credit Suisse by UBS? Find out more in this blog post.
Financial services (“FS”) dealmakers entered 2024 with renewed optimism, looking back on 2023 as a period of reduced M&A activity due to economic uncertainties driven by high inflation, rising interest rates and increased geopolitical risks, as well as the failures of banks such as Silicon Valley Bank, Signature Bank, and First Republic Bank in the US and Credit Suisse in Switzerland. Despite ongoing economic and geopolitical challenges, signs of recovery in financial markets are supporting investor confidence. In this context, M&A remains vital for the transformation of the financial services industry, either through acquisitions for growth or add-on capabilities, or through divestitures of non-core assets.
With the exception of the takeover of Credit Suisse by UBS, large-scale and/or international transactions in Europe were limited in 2023. Despite the underlying need for banking consolidation which is supported by regulators, we expect this trend to continue through 2024, in particular due to capital and liquidity ring-fencing measures for cross-border subsidiaries and increasing valuation expectations. Banks predominantly use M&A to strengthen their balance sheets, accelerate the exit from non-core portfolios, and invest in new capabilities or technology solutions, i.e., primarily in capital-light business models such as fintech, advisory, or asset management. Credit quality has shown resilience in 2023, nonetheless, persistent economic headwinds could lead to an increase in banks’ distressed assets, especially in commercial real estate. The insurance sector will see deals aimed at divesting complex legacy portfolios to reduce costs and improve capital efficiency, with ongoing consolidation in the insurance brokerage sector attracting private equity interest. The payments sector remains attractive for investment due to its scalability and profitability, with buy-and-build strategies popular among private equity firms. Meanwhile, FS companies will enter into strategic partnerships with fintechs, although challenges in accessing capital could see some fintechs becoming acquisition targets or getting involved in distressed M&A, while others may exit the market.
Financial services deal volumes and values, 2019-2023
Sources: LSEG and PwC analysis
What are the M&A trends in the Swiss financial services industry?
Following the acquisition of Credit Suisse by UBS and the introduction of a new group structure in 2023, close attention is being paid to the integration process and the ambitious timeline set by UBS. The legal merger of the Swiss entities is scheduled for this year, while the operational migration of client and product data is planned for the end of 2025. Regulatory authorities, clients, and other market participants will need to carefully monitor the situation and its impact on Switzerland as a financial centre. Investors and dealmakers will specifically keep an eye on potential divestitures of non-core assets, both in Switzerland and abroad.
Apart from the merger of the two big players, deal activity across different sub-sectors in Switzerland was limited in 2023. Despite the challenging market climate, there’s optimism for increased deal dynamics in 2024. Financial services companies in Switzerland are under pressure to evolve their business models to meet current and future challenges and deliver sustainable results; and M&A can play a key role in this transformation.
M&A activity in the Swiss private banking sector has been slow in 2023, with no substantial in-market consolidation and limited cross-border deals. While numerous private banks are open to discussions on a potential acquisition, only a limited number of players are currently considering a strategic sale. Further, many players have sought for opportunities to pick up AuM via team grabs and clients moving across from Credit Suisse rather than actively pursuing M&A strategies.
Given this market environment, we expect market consolidation to continue only gradually. Potential targets could include smaller private banks with less than CHF 5 billion in AuM or subsidiaries of foreign banks with insufficient profitability and limited growth opportunities on a stand-alone basis. On the other hand, there is increased interest in acquiring domestic independent asset managers, with private banks seeking to improve their in-house capabilities and diversify their business models (see also our current view on IAMs below). M&A processes are unlikely to be large-scale auctions but will rather take place as limited auctions.
In general, the German private banking market is regaining importance for many private banks in Switzerland and Liechtenstein, particularly those that can address underserved client segments in the German wealth management market or offer a clear offshore value proposition. Market expansion is not necessarily pursued through M&A, but also through the establishment of local branches and the recruitment of client advisors from existing institutions in Germany. However, we also foresee some Private Banking M&A processes in Germany during FY24.
See also our latest market update on the Swiss private banking market for further trends and insights here.
We currently see M&A gaining more traction in the asset management market including latest news of Amundi acquiring Alpha Associates, a Zurich-based independent asset manager, and Vontobel investing in Ancala Partners, a London-based independent private infrastructure manager. Furthermore, we see a number of potential deals currently being evaluated in the DACH region as well as increased traction on our proprietary PwC platform, that we have built exclusively for IAMs in Switzerland to find M&A opportunities and partnerships through an anonymized match-making process.
2023 was a landmark year for the asset manager industry in Switzerland as the first year after the deadline for Swiss portfolio managers to submit their licensing application to FINMA. This has raised questions about how portfolio managers are dealing with regulatory requirements and how this is reshaping the industry, its dynamics, and the key trends for the future. We have examined these topics in the second edition of our market study; see our latest results here.
Our key findings include:
- As of October 2023, 66% (1,043 out of the total 1,578 portfolio managers) have obtained a FINMA license. The licensing requirement does not appear to pose a significant obstacle for new market entrants, as evidenced by 44 new entrants as of October 2023.
- We estimate the total assets under management of the portfolio management industry to be approximately CHF 400 billion.
- Looking ahead key success factors include scalability and achieving critical mass, business model efficiency, professionalization through digitalisation and appealing service offering to meet changing client expectations.
Figure 2: Independent asset manager industry in Switzerland
Based on our discussions with market players, we expect a consolidation in the range of 10-25% in the number of portfolio managers over the next years. There are several key drivers behind this accelerating trend in M&A activity:
- Large players acting as market consolidators;
- Some private equity-backed PMs actively pursuing a buy-and-build strategy;
- Strategic alliances and partnerships being formed to realise synergies;
- Succession planning considerations as founders look towards retirement;
- Challenges with regulatory audits and operational efficiencies from mergers or partnerships.
The trials and tribulations in the global economy over the past year have clearly had an impact on the insurance M&A market. Although deal activity in Switzerland has slowed, certain market players are taking the initiative to be more transformative in their dealmaking. Zurich Insurance Group (“Zurich”) has taken the spotlight with a number of announced transactions over the past six months. In August 2023, Zurich completed the sale of Farmers New World Life Insurance Company, a US-domiciled provider of individual life insurance products, to Resolution Life Group Holdings LP for a total consideration of US$1.8bn. In September 2023, Zurich announced a joint venture with Kotak Mahindra Bank and acquired a 51% stake (now 70%) in Kotak Mahindra General Insurance (“KGI”) for US$488mn. This move allows Zurich to tap into the potential of India’s fast-growing retail and commercial insurance market.
Most notably, Zurich announced the collapse of its proposed sale of its legacy traditional life insurance business to Viridium Holding AG (“Viridium”) as the German regulator (BaFin) scrutinised the deal in the context of Viridium’s private equity ownership structure. Zurich had entered into an agreement with Viridium in 2022 to sell its US$20bn book to further reduce its capital requirements and interest rate exposure. The lack of transparency and additional risks inherent in the PE owner/insurance carrier relationships are causing regulators concern. Regulators will be prompted to tackle these concerns by implementing more standardised capital requirements, bolstering liquidity monitoring and stress testing, while also conducting asset quality reviews in the insurance sector.
Deal activity in the Swiss insurance broker market remained resilient over the past year. We have been observing a significant consolidation in the insurance broker market in UK and Germany, a trend which is now also emerging in Switzerland: Transactions in 2023 were dominated by foreign consolidators backed by leading PE firms. In fact, one of the largest PE-backed insurance broker consolidators, the Ardonagh Group, acquired Assepro AG in October 2023. Assepro AG is the largest independent commercial broker for small and medium-sized enterprises (SMEs) in Switzerland. The acquisition gives Ardonagh access to the Swiss, Austrian, and Liechtenstein markets, in line with its aspiration to expand its European presence.
The major transactions in the Swiss insurance broker market are outlined below:
| Acquirer | Target | Completed date | Acquirer Geography |
| Howden Schweiz AG | Haakon AG | 05 Dec. 23 | Switzerland |
| Ardonagh Group Ltd | Assepro AG | 31 Oct. 23 | United Kingdom |
| Assepro AG | INSURA Consulting Urech & Partner AG | 01 Sep. 23 | Switzerland |
| Howden Group Holdings Ltd | RVA Versicherungsbroker AG | 21 Jun. 23 | United Kingdom |
| Howden Group Holdings Ltd | Hudson Sky International SA | 04 May 23 |
United Kingdom |
| Arthur J Gallagher & Co States | AccurART Kunstversicherungsmakler AG | 04 May 23 | United States |
| Howden Group Holdings Ltd | Argenius Risk Experts AG | 03 May 23 | United Kingdom |
| Neutrass | Finas Broker AG | 23 Feb. 23 | Switzerland |
| Qualibroker |
ProConseilis SA |
06 Feb. 23 |
Switzerland |
Our 2023 Swiss Insurance Intermediary Survey takes a closer look at the performance and prospects of the Swiss insurance broker market. Access the full report here.
The Swiss fintech market continues to attract investment, in particular crypto and blockchain-related topics have been fuelled by the approval of bitcoin ETFs and the rising bitcoin price. Large financial institutions are likely to see further efficiency gains from generative AI, leading to increased funding. In general, profitable B2B models are attracting more funding than B2C models, and with sufficient scale, larger corporates may consider them as potential M&A targets or will enter strategic partnerships. More recently, however, we have seen a decline in overall deal activity, in particular in the insurtech sector, and it remains to be seen whether for example traditional insurance companies are willing to take on these non-traditional investments to transform their businesses. The current higher interest rate environment and ease of funding also present challenges for investments in this space. The market has seen increased investor caution with an interest in more in-depth due diligence as they look for more demanding value propositions.
Here, we look in more detail at the regional reach of insurtech transactions by European investors over the past eight years, and how this has evolved since our 2021 report.
Sustainability is not only a strategic priority for many financial services players headquartered in Switzerland and Liechtenstein, but also a growing factor in their M&A activities. According to PwC Switzerland’s study ‘Sustainability on the M&A agenda’, 48% of the respondents see sustainability as one of their top three strategic priorities and 59% believe that sustainability plays a (very) important role in the context of a transaction. Those responses are driven by corporate values, reputation, and stakeholder expectations. Regulation also matters and is bound to increase the pressure on financial services players as new non-financial reporting requirements for major financial institutions will apply in Switzerland from 2024.
Participants from our study are planning to integrate sustainability considerations more frequently throughout the entire deal process, with a focus on sustainability due diligence:
Figure 3: Integration of sustainability in different Deal activities
However, many respondents still lack a consistent framework and face challenges in systematically integrating sustainability into their deal activities. Data availability and quality, as well as the lack of consistent frameworks and standards are some of the main obstacles. We expect these challenges to be overcome over time as the industry evolves and converges towards common practices.
See our latest study with further details on sustainability in financial services M&A here.
2024 M&A outlook for the Swiss financial services industry
Despite economic uncertainty and sector-specific challenges, I expect an acceleration of M&A activity in the Swiss financial services sector in 2024. M&A remains a key strategic tool for market participants to gain sufficient scale, add missing capabilities, manage risks within the own portfolio or drive the digital transformation agenda of banks, insurances and asset and wealth managers. Decision makers in financial services need to stay informed and define a strategic approach to M&A and post-merger integration in order to thrive in the current environment.
“I anticipate a resurgence in financial services M&A activity for 2024. However, the sustainability of this momentum beyond the short-term remains to be seen.”
Marc Huber,Partner Deals Financial Services, PwC SwitzerlandM&A industry trends in Switzerland
Learn about the key trends driving M&A activity in Switzerland
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