Given the prevailing market conditions, consolidation and distressed M&A remains another area of possible activity, which may involve consolidation amongst firms who need greater scale to achieve their strategy, acquisitions of firms that need to restructure or banks divesting of non-performing loans.
M&A will continue to provide a route into the UK market for overseas financial services firms – demonstrated by the recent acquisition of Birmingham Bank by Better, the US-based digital home ownership platform.
Favourable exchange rates, a shared language, a transparent legal and regulatory environment, attractive tax rates, the availability of finance and talent, and an openness to foreign investment are some of the reasons that US investors are attracted to the UK.
However, while overseas investors and firms will continue to be interested in UK banking M&A opportunities, it is unlikely the sector will be flooded by new foreign entrants.
The assessment of the suitability of any person or entity as a controller of an authorised firm means the FCA and the PRA are (rightly) able to ensure that M&A is not a backdoor into ownership of a UK financial institution.
Over the past 12 months or so transactions have taken longer – as acquirers ensure detailed diligence is carried out, and the regulator takes the time available to assess the suitability of potential controllers – and in some instances have required additional complexity as parties look to advisers to ensure the increasingly unpredictable 'what if?' scenarios are catered for.
But the landscape for M&A in the banking sector remains positive and M&A will continue to play its part in the evolution of the sector.
Philip Barratt is a partner in the corporate team at law firm TLT
