The industry overview
M &A in the financial-services industry is recovering from the global slowdown of 2023. Monthly deal value in 2024 returned to the average monthly value of the prior five years, and total deal value for 2024 was 30 percent higher than that seen in 2023.
Nine out of ten financial-service deals in 2024 were made within national borders—up from six out of ten in 2021—reflecting global economic uncertainties and rising cross-border regulatory and geopolitical hurdles. As anticipated by McKinsey’s 2024 M&A report, scale and capability deals proved to be the driving force in deal rationales (80 percent of total industry deal value). The share of bank acquisitions in total industry deal value declined by almost half (from 44 percent in 2020 to just 28 percent in 2024), reflecting uncertainties about the quality of some bank portfolios, capital pressures from higher interest rates, and expected regulatory changes.
Dealmaking picked up in the capital-market, wealth-and-asset management, and fintech-and-payment sectors, where many dealmakers see increasing opportunities for profitable growth. Together, those three subsectors represented 66 percent of deal value in 2024, up from less than 50 percent in 2020—and the majority of the largest financial-service deals were in these sectors.
The capital-market sector is expanding into high-growth and high-margin subsectors (such as into private markets and into fintech and payments). The wealth-and-asset-management sector is focusing more on consolidation and cost reduction; each of the largest deals in that sector included plans to strengthen businesses’ core models and create efficiencies with larger bases of assets under management.
Armed with an unprecedented more than $2 trillion in dry powder, private equity firms continued to play a noteworthy role in the sector, focusing on capital-light businesses (such as capital-market technology and data-and-asset-management technology).
Opportunities for 2025—and beyond
Dealmakers are adapting to shifting dynamics across sectors. The banking, wealth-and-asset-management, fintech-and-payment, and capital-market segments each face distinct challenges and opportunities.
Deals in commercial and retail banking will continue to focus on sector consolidation as more countries look for “soft landings” amid lowering interest and inflation rates. In the United States, the new administration may provide regulatory tailwinds for further consolidation of a highly fragmented market that still has over 4,000 banking institutions. While we expect that most dealmaking in the sector will continue to be driven by midsize institutions, some larger banks are also contemplating inorganic growth opportunities. Within Europe, we anticipate further cross-border banking consolidation, given a growing consensus among policymakers and executives about the need to provide European banks with opportunities to become more competitive on a global scale.
In-market consolidation is also likely to continue in the Middle East, where half of the largest banks in key geographies have made deals in the past five years. We expect this trend to continue, with more momentum toward acquiring businesses in Islamic banking, given its robust growth (about 11 percent annually, compared with 8 percent in non-Islamic banking). In Asia, we expect deal activity to remain muted. Banks in that region are focusing more on digitalization to counter the growth of new digital players; however, we do expect to see further consolidation in markets like Indonesia and Malaysia.
Wealth-and-asset-management companies will likely continue to see dealmaking momentum. Both traditional and alternative asset managers will continue to expand into the alternatives space. Alternative asset managers will also continue to look for partnership and acquisition opportunities in insurance to tap a stable source of capital while providing higher returns. Distribution in wealth and asset management will also likely continue its trend toward greater consolidation—a push that is driven in large part by private equity funds and banks.
Many fintech companies struggled to secure funding in 2024, with investments continuing to trail the sector’s peak in 2021. Limited cash flow across the sector is likely to lead to further consolidation, with larger, well-capitalized companies seeking to scale up by acquiring smaller players. We expect banks to remain cautious and play only limited roles in fintech acquisitions. We also expect some acquisitions in the digital-assets space as cryptocurrencies become more mainstream, with deal activity rising to help legacy companies in the sector catch up with new technological developments, especially in the United States.
In payments, a considerable share of the sector is already consolidated, reducing the potential for megadeals. Hence, we anticipate that acquisitions will focus on smaller capability deals. Given momentous pressures from growing regulatory scrutiny, the strains of public reporting, and expectations from public-market investors, coupled with lower market valuations, some payments companies could be driven out of the public markets.
In capital markets, infrastructure players are very excited about expanding into data and technology. Given that relatively few large targets remain in this space, most activity will focus on smaller deals as firms look to augment their data and technology capabilities across asset classes and the investment value chain.
Private capital firms will continue to look for opportunities to acquire fintech companies for multiple financial services, as well as to effect consolidations within the registered investment adviser space. Many funds are looking for exits, and we expect them to look for opportunities to offload some of their assets to strategic investors. Average holding periods are now exceeding six (and in some cases, approaching seven) years, depending on the region.
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