Merger and acquisition activity in the North East’s financial services sector is set to ramp up in 2015 as further consolidation of the market is expected.
Market experts from Deloitte suggest sector consolidation, driven by incremental cost increases, squeezed margins and regulatory pressures, will encourage more deals over the coming year.
2014 saw the national level of financial services deals grow, including the acquisitions of Moneybarn by Provident Financial plc, HML by Computershare, and Shopacheck by RCapital.
Deloitte suggests the sector is in the middle of a sustained period of change prompted by ongoing regulatory developments, access to existing and new sources of capital, competitive pressure driven by creativity and innovation in new product offerings and technological developments, alongside the continued pressure on margins.
The introduction of the Financial Services Authority’s Retail Distribution Review (RDR) at the end of 2012, was said to be the biggest shake-up of the industry since it was deregulated nearly 30 years ago.
Deloitte says the expansion of the Financial Conduct Authority’s (FCA) remit to cover the consumer credit sector has created opportunities for businesses with strong internal controls that can help them adapt to changing regulatory requirements.
Phil Morris, managing director of Easby Gale and Phillipson, a firm of independent financial planning and mortgage advice specialists with an office in Newcastle, said there is significant opportunity in the North East to provide financial advice following the introduction of the RDR, and revealed the firm is plotting growth this year.
Mr Morris said: “Since the RDR there has been a significant reduction in the availability of financial advice in the North East, and we can see reason to invest in the North East.
“The industry is faced with transforming its image and there is opportunity for firms who build transparency and awareness into the services they provide.”
Commenting on Deloitte’s research, Chris Wildsmith, director in Financial Services at Corporate Finance in Leeds, said: “2014 was a year of landmark change for the consumer finance sector as regulatory responsibility transferred to the FCA.
“As many businesses have initially focused on working through the FCA approval process, 2015 will give management teams chance to take stock and identify opportunities for merger and acquisition-led growth.
“The companies that will be best placed to take advantage of this will be those already demonstrating best practice in relation to the letter and spirit of regulatory requirements, as they will have the most to gain from increasing scale and more time to consider such opportunities.”
Peter Birch, partner in Financial Services at Deloitte, added: “For financial services businesses in Yorkshire and the North East, 2015 is likely to bring significant opportunities for merger and acquisitions.
“Locally we have seen recent high profile transactions that indicate the willingness and ability of well-positioned businesses to diversify operations and add scale.
“In addition, regulatory pressures are likely to drive consolidation in the consumer credit sector in particular. These factors, together with interest from private equity in acquiring assets in Financial Services are likely to drive merger and acqusitions in the sector over the course of 2015.”