The interest of private equity firms in European financial institutions has been touted as a driver for M&A in the sector, but transaction volumes in 2021 are on course to slip to their lowest level in several years, S&P Global Market Intelligence data shows.
As of Nov. 23, private equity firms had made 67 investments in European financial institutions, with a total value of €7.09 billion. With just a month left in the year, the total transaction volume remains significantly below the 85 reached in 2020.
Transaction volumes have been declining yearly since 2016, when they hit 100. The value of transactions has also fallen each year since 2017, when €22.48 billion worth of deals were inked, though there has been an uptick in 2021.
Notable deals in recent years include Cerberus Capital Management LP and its affiliates acquiring the French retail business of U.K.-based HSBC Holdings PLC and a majority stake in My Partner Bank, formerly Banque Espírito Santo et de la Vénétie, from Portugal's Novo Banco SA.
This year, private equity firms J.C. Flowers & Co. LLC and Bain Capital LP agreed on a deal to acquire a stake in the holding company of The Co-operative Bank PLC. However, several deals have failed to complete. The Carlyle Group Inc. walked away from talks to acquire U.K.-based Metro Bank PLC, Banco de Sabadell SA rebuffed The Co-op Bank's interest in TSB Bank PLC and supermarket chain J Sainsbury PLC ended a sale process for its Sainsbury's Bank PLC unit.
Private equity interest is among the key drivers for an expected uptick in European banking M&A, according to law firm White & Case's financial institutions M&A sector trends report released in September.
Private equity firms have been attracted to the relatively low valuations of European banks, though the prospect of rising interest rates means lenders are reluctant to accept offers they believe do not fully reflect future potential performance.
Aareal in focus
One of the biggest European banking deals this year was announced Nov. 23 when Aareal Bank AG recommended a takeover offer from investors led by Advent International Corp. and Centerbridge Partners LP of €29 per share, valuing the German lender at roughly €1.74 billion.
Aareal Bank said the offer price implies a premium of about 35% on its volume-weighted average share price in the three months leading to Oct. 7, the day it confirmed negotiations with the investors.
Aareal Bank's shares have risen more than 50% year-to-date, outperforming the 35.63% rise of the EURO STOXX Bank index. It had been under pressure from activist investors, who criticized the property-focused bank's performance and remuneration policy.
The bank reported a €23 million net income in the third quarter, rising from €1 million a year prior. However, impairments are still weighing on its results.
Aareal Bank CEO Jochen Klösges said the offer is a "testament to the attractiveness and sustainability of our business model." Aareal flagged its banking and digital solutions division as having "considerable potential for further capital-efficient growth in net commission income" with the support of its new owners through the expansion of payment services, including via M&A.
One condition of the deal is that no capital distributions can be made by Aareal Bank until closing. As such, the bank will strike a proposal for a dividend payment from the agenda of its extraordinary general meeting in December.