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This time last year American Banker predicted six types of deals that would predominate in 2013. We were right about some things (more mergers of equals), wrong about others (lots of tiny banks would sell), and partly correct in some cases. Here's our self-critique.
December 19 -
Banks that want to expand via M&A will face a special challenge in 2014. The failed-bank market has quieted, but regulatory costs and other factors that are expected to drive open-bank M&A haven't coalesced quite yet, says bank M&A advisor Randy Dennis.
December 23 -
The decision by private-equity backers of Sterling Financial to push for a sale of the entire Spokane company, rather than to merely unload their shares, surprised investors. It also showed that investor exits are a complex business which often defy expectations.
September 5
Those who are hopeful for more commercial bank M&A should take a time-out to observe what's going on in the broader financial services sector.
But Mergers & Acquisitions, a sister publication of American Banker with its pulse on dealmaking in the so-called middle market, reminds us that insurance, real estate and other parts of the sector are having a more robust M&A experience that is expected to continue in 2014.
Private equity may have
It all serves as reminder that banks have to work hard to compete with other financial services businesses for the same capital. Yet, banking companies are in a lot of these nonbank businesses themselves, and this nonbank M&A activity underscores the opportunities to be had in the buying and selling of niche services such as insurance and technology.
The following is the Merger & Acquisitions outlook for dealmaking in financial services, insurance and real estate in 2014.
Sector Snapshot
Companies in the financial services, insurance and real estate industry have been targets of M&A since the recession, as buyers look to take advantage of lower valuations, and the stronger strategic players in the sector look to gain market share. This trend is expected to continue in 2014.
"Given the continued low interest rate environment, we are expecting activity in 2014 to focus on cash-flow businesses within the financial services sector, supported by robust leverage markets and a continuing stable-but-modest growth environment," says Clifford Brokaw, a managing director with New York-based Corsair Capital, a private-equity firm that invests in financial services companies.
Notable Deals
A few trends stand out, and PE firms and corporate buyers have been trolling the middle market. In April, investment bank and financial advisor Duff & Phelps Corp. was acquired by a consortium of buyers that included the Carlyle Group (CG) and Stone Point Capital LLC in an all-cash transaction valued at about $665.5 million.
Then in July, with hopes of expanding its mid-market M&A business and reach to private-equity clients, Piper Jaffray Cos. (PJC), purchased Edgeview Partners LP, a middle-market advisory firm specializing in M&A. Founded in 2001 and based in Charlotte, N.C., Edgeview Partners was formed by former employees of Bowles Hollowell Conner.
The insurance industry has been bustling with activity. In the largest takeover of a U.S. insurance broker on record, private-equity firm Hellman & Friedman agreed in August to pay $4.4 billion for Hub International Inc., Canada's largest insurance brokerage. New York-based Apax Partners was the seller. Then in November, Hellman joined with private-equity firm JMI Equity in acquiring insurance software developer Applied Systems from Bain Capital LLC in a $1.8 billion buyout.
Others were also active. In October, Aurora Capital Group, a Los Angeles private-equity firm, completed the sale of Mitchell International, a provider of technology, connectivity and information solutions to the property and casualty claims and collision repair industries, to Kohlberg Kravis Roberts & Co. (KKR).These deals underscore private equity's continued interest in the insurance industry. In 2012, KKR completed a $1.8 billion takeover of Alliant Insurance Services Inc. from Blackstone.
Real estate deals continue to attract attention as well. One of the more noteworthy deals was closed in May when the Blackstone Group LP (BX) purchased Apple REIT Six Inc., a real estate investment trust focused on hotels, in a $1.2 billion deal. New York-based Blackstone has been buying lodging properties from lower-priced chains to luxury hotels since 2012. Apple REIT Six, which focuses on upscale, extended-stay and select-service hotels, owns 66 hotels with 7,658 guest rooms across 18 states. The properties operate under brands including Courtyard by Marriott, Fairfield Inn and Hilton Garden Inn. Other private-equity firms are likely to follow suit.
Coming Up
The quick pace of dealmaking in the sector is expected to continue in 2014.
"Activity may be driven by divestitures from large financial institutions as well as sponsors selling businesses they bought in 2005 through 2007," Corsair's Brokaw says.
Dean Anason contributed to this article.
(The original version of this article appeared in
