Dealmakers are optimistic about M&A in the financial services (FS) sector for 2025, building on the momentum created in 2024, which saw an increase in megadeals and growth in deal values, despite continued low deal volumes. Although some of the factors which inhibited dealmaking in 2024 have lessened, the FS industry faces continued uncertainty from macroeconomic conditions and geopolitical tensions, as well as margin pressures in the highly competitive and regulated FS environment.
M&A continues to be an essential strategic element in helping financial services players shape their future and adjust their business models to stay relevant and generate growth. We expect that dealmaking activity in the FS industry will include acquisitions focused on both revenue and margin growth, with the intent of accessing new markets and technologies to remain competitive. For example, banks might acquire or partner with fintechs to address growing technology needs, changing client preferences or other disruptions to their business models that are taking place due to trends such as embedded finance. Divestitures will rebalance underperforming portfolios and generate capital that can be used to reinvest in higher-growth or more profitable areas.
Dealmakers are already showing an increased appetite for larger deals, and we expect this will continue in 2025. Megadeals (deals greater than $5bn) in the FS market during 2024 included Capital One’s proposed $35.3bn acquisition of Discover Financial Services in the US, Guotai Junan Securities’ proposed $14.5bn merger with Haitong Securities in China and BBVA’s proposed $13.4bn merger with Banco Sabadell in Spain.
‘The underlying pressure on industry players to drive growth and transformation will create the impetus for higher levels of financial services M&A activity in 2025. I expect more megadeals will be announced, building on the momentum from 2024. These large deals signal growing confidence among dealmakers and raise the pressure on all market participants to move.’
Christopher Sur,Global Financial Services Deals Leader, PwC GermanyUnder the new US administration, the United States is expected to enter an era of financial deregulation which could increase pressure on regulated financial services companies in other countries. For example, if competition stiffens for European banks, European regulators may face increasing pressure to relax or delay the implementation of more stringent capital requirements. For this reason, combined with different rates of growth in countries around the world, we expect to see greater regional differences emerging which may affect where M&A activity takes place.
Source: PwC’s 28th Annual Global CEO Survey, January 2025
Key M&A themes for financial services in 2025
- Scale and leverage. In the asset and wealth management sector, growth through acquisition allows companies to leverage scale and deepen private credit and alternatives capabilities. Acquirors can improve the customer experience, thereby raising their own competitiveness. Acquisitions may also help banks scale to absorb anticipated increases in costs associated with complying with new and existing capital requirements, and to spread costs of their technology investments across a wider asset base. Beyond the European market, consolidation is also expected in the US market, especially among smaller financial institutions. With the new US administration anticipated to take a more lenient approach to regulation, it may become easier for these mergers and acquisitions of smaller players to take place.
- Business model reinvention. The ecosystem for FS players is evolving rapidly as technology disrupts business models and new market entrants face increased competition. FS players need to systematically review and rethink their value chains, distribution channels, customer communications, technology platforms and all other aspects of their operations to identify new ways of doing business to stay relevant. This is particularly important for FS companies due to the increasing significance of embedded finance and open banking on the value chain. The need for transformation is one of the primary drivers of M&A and is creating opportunities for cross-sector dealmaking beyond the traditional FS sectors to other sectors such as technology, consumer, health, automotive and more.
- Private credit. The private credit market has been growing rapidly, with Preqin estimating that global private credit assets under management will grow from almost $1.7tn in 2024 to $2.4tn by 2028. The rise of private credit is influencing dealmaking in the FS industry in several ways, including the following:
- Asset management firms and other non-bank financial institutions are acquiring private credit firms to diversify product offerings and enhance recurring fee revenues.
- Private credit funds are acquiring other private credit funds to grow market share and are acquiring firms with specialist lending capabilities that may help them expand into niche or underserved markets.
- Banks are restructuring their own operations and exploring partnerships and acquisitions to compete with private credit providers for market share of private debt lending.
- Asset managers are acquiring insurance assets to gain access to managing the large pools of permanent capital held by insurance companies, which, in turn, creates greater demand for private credit.
- Private equity (PE). PE funds are expected to be active buyers and sellers in 2025. On the buy side, particular focus areas of PE investors include commission-driven and scalable businesses such as insurance brokerages, payment solution providers, independent financial advisor boutiques, private wealth management specialists and asset servicing companies. Capital availability is not likely to be a limiting factor as PE funds search for attractive investment opportunities for their ‘dry powder’. From a sell-side perspective, we expect an increase in PE exits, with PEs under pressure to return capital to limited partners. Anecdotally, we are seeing an increase in sell-side preparation, creating the potential for more exit activity in 2025.
- Strategic partnerships. FS firms are increasingly exploring strategic partnerships not only to enhance revenue but also as a means of optimising cost structures and leveraging technology they have built through SaaS arrangements and tie-ups. Such collaborations allow companies to capitalise on shared revenue opportunities while strategically streamlining back-end operations for efficiency gains and cost reductions.
Spotlight on fintech M&A in Latin America
Over the past decade, the fintech sector has reshaped the FS landscape globally, blurring sector boundaries, pushing traditional players to reinvent their business models and creating opportunities for M&A. A steep decline in venture capital funding in the past three years has slowed momentum, but in many countries, the fintech sector continues to grow in both strength and relevance for customers and is positioned to benefit from the ongoing transformation of the banking industry.
In Latin America (LATAM), the fintech sector is also being propelled by a broader trend playing out in several other emerging economies, including India, Southeast Asia and Africa, in which smartphones and digital technology opens up access to digital credit and banking services for previously underserved users, including in rural areas.
LATAM’s fintech ecosystem and M&A
Fintech in LATAM stands out as fertile ground for M&A activity, especially in countries such as Brazil, Mexico and Colombia. By the end of 2023, more than 3,000 companies made up the fintech ecosystem in LATAM and the Caribbean, which has grown by 340% since 2017, according to a June 2024 report by Finnovista and Banco Interamericano de Desarrollo (BID).
Many of these companies are startups, with a need for venture capital (VC) funding to grow. VC investment in LATAM, as elsewhere, remains below its 2021 peak, but fintech startups in the region continue to attract the most funding of all sectors. According to the Association for Private Capital Investment in Latin America (LAVCA), fintech startups accounted for 30% of VC deals during the first nine months of 2024, but 57% of the total VC dollars invested. Total VC dollars invested in fintech during the first nine months of 2024 in LATAM was $1.6bn, an increase of 26% compared to the first nine months of 2023. The top three countries in the region to receive VC fintech funding during the first nine months of 2024 were Mexico ($692m), followed by Brazil ($487m) and Colombia ($254m).
Data from CB Insights indicates in December 2024 that there were 32 unicorns (privately held companies with a valuation greater than $1bn) in LATAM, with over half of these unicorns in the financial services sector: nine in Brazil, five in Mexico, and one each in Argentina, Ecuador and Colombia.
Recent cuts in interest rates may boost demand for equity and reactivate the capital markets. The last LATAM fintech IPO was Brazilian neobank, Nubank’s $2.6bn capital raising in December 2021. After a prolonged pause we are now seeing some LATAM fintechs undertaking steps toward IPO readiness and expect some will likely come to market in 2025, depending on capital market conditions.
Fintech’s evolution creates dealmaking opportunities
With challenging IPO markets and less venture capital available over the past few years, many fintechs have been forced to improve their operational efficiency and refine their business models, positioning some as potential acquirors to expand within the region and others as targets for expansion-minded buyers. Traditional institutions have invested heavily to develop their own fintech capabilities in recent years which will create opportunities for deals activity and monetisation through software as a service (SaaS) agreements across the spectrum from payments, automated know your customer (KYC) and compliance, and AI. We see this trend likely to continue and create opportunities for M&A, particularly across the three largest fintech segments as follows:
Even though the last couple of years have presented significant challenges with funding reductions, and valuation corrections, the fintech sector has proved to be one of the most resilient and dynamic in the LATAM region, and we expect this trend will continue in 2025 and beyond. Declining interest rates and growing interest from potential international investors keen to rebalance their portfolios will help diversify financing sources and reduce dependency on funding rounds. Together, this will likely increase M&A activity in the region and contribute to sector consolidation as well as alliances with traditional financial institutions and technology companies.
Global M&A volumes and values in 2024
Global deal volumes in FS decreased by 13% between 2023 and 2024, but deal values told a very different story and increased by 71% over the same period. The increase in deal values was mainly because of an increase in megadeals: 16 FS megadeals were announced in 2024, compared with three in the prior year. Each sector had a greater number of megadeals, with six in insurance, five in asset and wealth management, and five in banking and capital markets.
On a regional basis, Europe, the Middle East and Africa (EMEA); Asia Pacific; and the Americas all experienced a decline in deal volume during 2024, but each maintained an approximate one-third share of the overall global total. In the Americas, deal values increased by 85% between 2023 and 2024, leading to an increase in its overall share of global deal values from 48% to 52%, respectively. Over the same period, deal values in EMEA and Asia Pacific increased by 80% and 40%, respectively. The trend in deal values by region was mainly attributable to the distribution of megadeals: ten in the Americas, four in EMEA and two in Asia Pacific.
Global M&A trends in financial services
2025 M&A outlook for financial services
After a relatively dry spell for FS deals, FS companies and private equity are both expected to be more active M&A participants in 2025, with an increased appetite for megadeals. Corporates are being driven by the strategic need to grow both the top and bottom line, with many needing to transform and reinvent their businesses or operating models. Private equity funds continue to view FS as an attractive area in which to invest, with many building their own specialist FS teams. The pressure to exit on the one hand and to deploy capital on the other will keep PE active in FS in 2025.