The big reversal: Q4’22 M&A trends in financial services

By nearly any measure, M&A activity in financial services (FS) was much weaker in 2022 than in 2021. The number of deals dropped 21 percent to 6,589 and total deal value fell a staggering 41 percent to $489.9 billion. Year-over-year comparisons were similarly negative for the primary FS subsectors (i.e., capital markets, banking, and insurance) and deals involving strategic and private equity players.

A macroeconomic trifecta—mounting inflation, rising interest rates, and fears of a recession—was mainly responsible for the damage. The war in Ukraine also had a negative impact on the environment for transactions, a harsh reminder that the threat of geopolitical shock is always present.

We believe the macroeconomic environment will remain the primary driver of activity in 2023. Our outlook is based on conditions changing from unfavorable in the year’s first half or so to favorable in the second half. Sentiment should improve when there’s consensus agreement that rates have peaked. This would provide deal makers and investors with the kind of all-clear signal they haven’t seen since late 2021.

We see no reason for the long-running FS consolidation trend to waver in 2023. The big want to get bigger, and small and midsize players must continually confront their commercial mortality. Consolidation should remain a major incentive for M&A in alternative investments, asset management, banking, fintechs, insurance carriers and distributors, insurtechs, investment banking, payments, real estate, wealth management, and more.

Download our Q4’22 report for the latest market trends and KPMG deal professionals’ view of what may lie ahead.