Simon Wood

Hello and welcome to Mergerspresso. I'm Simon Wood. In this episode, we'll be considering M&A themes in common to financial services and technology in the time that it takes to make your coffee. I'm joined by AG's sector leaders, Hardeep Plahe and Elvin Hussein. Hardeep, for FS firms now, what's more important, transformative M&A or building scale?

Hardeep Plahe

It's both, but scale is really important. There's been a wave of consolidation in banks, wealth managers, insurers to merge, to compete with the bigger players and to build resilience. We've seen that just last year. We acted for Coventry Building Society when they bought Co-op Bank, making it the sort of quite clearly the second biggest building society in the UK. That theme is also driving significant volume in M&A activity, especially in wealth management, where I read the other day that half of all M&A deals globally are for portfolio management businesses.

Simon Wood

And El, focusing on the scale bit for now, is consolidation as important for typically younger, more dynamic tech businesses?

Elvan Hussein

It is, but in a very different way. So one notable feature of recent tech M&A deals is to integrate and embed defensive capabilities into systems. Cyber security businesses are the exemplar targets here. So the key focus is really on establishing digital trust at scale. Businesses that can ultimately demonstrate measurable resilience command premium valuations in this market.

Simon Wood

Thank you. And then going back to the other bit of the question about transformative M&A.

Hardeep Plahe

Well, AI and financial tech solutions are clearly the priority, particularly as financial services firms look to make that sort of digital leap. What are they doing? They're acquiring fintech companies and by doing that, they're enhancing their tech capabilities and staying competitive, particularly as against new challenges. The most attractive acquisition targets tend to be those that are using AI across their operations and delivering measurable outcomes. Of course, the flip side of that is that there's a rising expectation for governance, deployment concerns, but of course, eventually, that will all one hopes lead to profitability.