Malta has witnessed increased deal activity in the banking
sector over the past years. We ask why and where the trend is set
What is driving the deal flow?
Radical changes in the economic and regulatory environment are
leading to a rethinking of banks' business models.
Wafer thin margins and higher compliance costs motivate
consolidation within the sector. At the same time a number of
established European banking groups came under fire as they sought
state assistance to allay financial troubles. Against this backdrop
we continue to witness the shedding of non-core assets and a wave
of geographic re-trenchment, also impacting certain local
subsidiaries of international banking groups.
The reputation of the Maltese jurisdiction coupled with the
Regulator's firm yet approachable disposition continues to
sustain interest in new local banking operations with a preference,
at times, for the acquisition of an ongoing operation as a mode of
entry. Reasons underpinning the latter's preference included
knowledgeable financial services personnel and their trusted
relationships with key stake-holders in the industry, operational
processes and procedures already in place that are compliant with
local requirements, together with specific financial assets that
may be of value to the acquiring entities.
Meanwhile developments in technology and the digital era
continue to drive niche banking offerings. Promoters of such
banking models are keen to meet the required robust standards while
keeping operating structures lean and cost effective – and
Malta fits the bill in this regard.
The Maltese jurisdiction is also seen in a favourable light by
large industrial/trading groups interested in a banking division to
service the needs of group members, as well as customers and
Pricing of banking deals
The limited number of local transactions does not allow for
meaningful transaction insights, as prices reflect transaction
specificities. On a more general level, prices are however
reflective of global Price to Book (PB) multiples that are still
below pre-crisis levels and currently averaging at a marginal
premium above book. Also mirroring developments at a European
level, are below book pricing scenarios arising as vendors are
tasked to exit investments in non-core banking units with limited
time-frames and resources to groom for sale.
At a European level, M&A activity in the banking space is
predicted to continue in bear mode as the major banks continue to
restructure and digest new regulation. The ECB's AQR is
expected to give rise to an additional round of non-core and
regulatory driven sales. This could impact local banking M&A by
presenting target opportunities. On the buy side the increasing
appeal of consolidation of second tier domestic (core) players
could also spur interest in transactions.
Sharing insights from our experience in banking M&A
From a sell-side perspective, it is critical to dedicate
sufficient resources and time to prepare the asset for the market.
This will typically entail juxtaposing the key areas of value of
the bank with knowledge of what is being sought for in the
buyers' market, allowing the seller to groom the bank in a way
that increases its appeal to the buyer audience. This process will
typically be supported by the preparation of high-level key
information at an early stage in the process, coupled with the
implementation of actions to optimise the bank's target
structure, such as asset carve-outs or reduction of capital.
Looking at a transaction from a buy-side point of view, a key
factor is the extent to which the acquirer can be specific on its
strategic rationale for the acquisition, reflecting it in a clear
and robust view of the target's synergistic potential.
Validating the deal rationale through a focussed due diligence is
also an important element of a successful acquisition. Finally all
this needs to be mirrored in the business plan to be presented to
the Regulator when seeking its approval for the transfer of
Keeping an open and proactive communication line with the
Regulator is highly recommended as a key contributor to a smoother
and timelier transaction execution, whether buying or selling a
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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