The sound of silence: Q1’23 M&A trends in financial services

Financial services (FS) mergers and acquisitions (M&A) activity fell dramatically from Q4’22 to Q1’23. Total deal value dropped 66 percent to $28.8 billion from $85.8 billion. Total volume fell 45 percent to 771 deals from 1,406.

Most deal makers stayed on the sidelines as inflation and rising interest rates created economic uncertainty.

The stress in the banking system in March sent shock waves through financial markets, which created fresh fears of a lending slowdown and tighter banking regulation.

We continue to believe that macroeconomic conditions will dampen FS M&A in 2023. Many deal makers likely will take a wait-and-see posture; some may look to strengthen their current businesses via acquisitions.

Interest rates should remain the key to sentiment and activity. While the pace of inflation has been declining, it’s still far above the Federal Reserve’s 2 percent target. The Fed responded in the first quarter by raising its benchmark fed funds rate twice—by quarter-point increments—to a range of 4.75 percent to 5.00 percent. The Fed is both committed to fighting inflation (which points to possibly another rate hike this year) and struggling to navigate a challenging macroeconomic landscape and likely credit crunch that essentially substitutes for additional rate increases.

We expect this uncertainty to limit both the value and volume of deal making in the FS sector for at least the next two quarters.

For the latest market trends and KPMG deal professionals’ view of what may lie ahead, download our Q1’23 report.