The UK financial services industry has seen significant M&A activity in 2024, despite a challenging wider macroeconomic climate with higher interest rates, regulatory scrutiny, and political uncertainties. Experian data recorded a 10% drop in deal volume up to Q3 2024, but improving market conditions boosted investor confidence, particularly benefiting larger deals. This led to a 6% increase in total transaction values, reaching approximately £53bn over the same period.

Acquirers are focusing on strategic transactions to accelerate growth and expand current service offerings, particularly in technology and digital transformation. Strategic buyers and investors are keen on acquiring technological capabilities to streamline operations.

In private equity (PE), there is a preference for capital-light businesses, due to high financing costs. PE investors have avoided businesses with high regulatory risk (both Prudential and Consumer) creating opportunities for strategic buyers already comfortable with this risk. After a period of inactivity over the past 12 months, PE has become more active, driven by factors such as transitioning to a declining interest rate environment, narrowing price expectation gaps, and the need to return capital to investors.

Data-driven insights are invaluable in financial services, boosting performance and shareholder value – the industries access to data is a key attraction. Banks, benefiting from higher net interest margins and excess capital, are now making acquisitions. This reverses the trend of selling non-core segments and adjusting balance sheets.

The industry is still facing a tight labour market across all sub-sectors, and staff cost inflation continues to be a challenge. Many have struggled to grow revenues in excess of costs, resulting in the need for greater scale to generate cost synergies – which in turn has driven deals. Similar to the US, with the UK facing an ageing industry workforce, businesses are also focusing on how to attract and retain key talent.