Snapshot for week beginning 10 January. Transactions in the retail banking and lending sector continue at the brisk pace set last week, with North America and Asia nearly monopolising the field.
The sector recorded 5 debt offerings valued at $405m, 2 acquisitions totalling $2.7bn, and 2 equity offerings worth $650m.
Nearly half of the transactions (6) were carried out in North America, adding up to $2.9bn. Another 6 took place in Asia Pacific and amounted to $805m. Europe accounted for the remaining one transaction.
Given the small number of transactions recorded last year, 2021 deal activity is likely to look off the charts relative to 2020. At least, percentage-wise.
M&A activity in 2020 was down approximately 50% from the number of deals completed in recent years. So, merely returning to 2014 through 2019 levels would represent a 100% increase in the number of deals year-over-year.
We could have a “record year” with deals up 50% in 2021 and still have materially fewer deals than were completed in 2019.
This week’s biggest performance features a large Swiss bank making a play for India’s most-prized startup.
Deal of the week: UBS eyes the darling of India’s startups
UBS Group, a Swiss multinational investment bank and financial services company, has entered deal negotiations with Paytm. The Switzerland-based company is looking to buy a $400m-stake in the Indian e-commerce payment system and financial technology company.
Paytm, whose backers include Chinese tech tycoon Jack Ma’s Ant Group Co., was valued at $16bn in a 2019 funding round.
UBS is reportedly negotiating the purchase of Paytm stocks from a group of the Indian fintech company’s employees. The parties aim to finalise an agreement as early as this month.
The Swiss bank sees Paytm, the most successful and well-known startup to have emerged from India, as a gateway to the country’s thriving digital payments market.
The sector has witnessed a monumental revolution in the last decade. The second-most populous country in the world, India has seen remarkable innovations and initiatives that have changed the way Indians bank, pay, and transact.
In 2016, the government pulled 86% of the country’s cash out of circulation, in a process known as demonetisation, which led to a growing acceptance of electronic payment systems.
This development has brought in hordes of global investors eager to cash in on the country’s digital upsurge.
Merchants from all over India are registered on the Paytm platform to digitally receive payments from their customers. The company is planning an initial public offering (IPO) in 2022.
Uncertainty stalls growth plans
Bank deals have been in deep freeze due to Covid-19 and the related economic downturn, but most of the executives and directors responding to Bank Director’s 2021 Bank M&A Survey say their bank remains open to doing deals.
More than one-third say their institution is likely to purchase a bank by the end of 2021. This represents a significant decline compared to the 2019 survey, when 44% believed an acquisition likely in 2020.
Branch and loan portfolio acquisitions also look slightly less attractive compared to the previous year.
Overcoming barriers to global dealmaking
The barriers to dealmaking may prove difficult to surmount in today’s uncertain economic and political environment.
With pressures on small businesses and the commercial real estate market exacerbated by remote work and social distancing measures, economic recovery (and bank and deals) may hinge on conquering the coronavirus.
In response, bank leaders are focused on credit quality. 63% point to concerns about the quality of a potential target’s loan book as a top barrier to making an acquisition, up significantly from last year’s survey (36%).
Despite concerns about credit quality and profitability, 85% say their bank is no more likely to sell due to Covid-19. Just 7% regret that they didn’t sell before the current downturn, when target banks could expect to command a higher price.