Consolidation across the regulated financial services space continues apace in Guernsey and Jersey.
While the market for mergers and acquisitions (M&A) was generally slow throughout 2024, M&A in the regulated financial services sector in the Channel Islands defied this general trend and remained robust. With the first quarter now behind us in 2025, why is this sector faring so well? We take a look at the key drivers and outlook for the rest of the year below.
Private equity interest in regulated financial services Regulated financial services has been a key target sector for a number of private equity firms, and continues to be the case.
Corporate services providers have a sticky client base, with it being common for a client to remain with a single corporate services provider for decades. This results in predictable and resilient revenues, making them an attractive target.
While the potential for outsourcing and offshoring of services has historically been an area where private equity has seen an opportunity for increasing profit margins, further opportunities to improve profit margins are revealing themselves with the increasing availability and appetite to use artificial intelligence in systems.
Furthermore, a number of existing private equity owners of local corporate services providers are coming to the end of their life cycle of ownership (often having extended the original lifespans of underlying fund vehicles given the existing market conditions), which is leading to an availability of ready private equity sellers.
Carve outs
We have seen a number of transactions where certain parts of business are carved out. For example, for a corporate services provider offering both fund and trust services, a carve out of the funds line of business sold to another fund administrator.
Regulatory environment
The increasingly rigorous regulatory environment, made more so in the context of Moneyval (the favourable results of which are summarised in our briefing), contributed to a higher burden on the compliance functions of corporate services providers, resulting in a higher workload and costs, and an increased use of consultants and sub-contractors. Smaller corporate services providers are therefore motivated to consider consolidation to achieve efficiencies and maintain profit margins.
Leverage and private credit
The advent of mainstream private credit has provided market participants with a highly competitive lending landscape and there is significant 'dry powder' available to fuel M&A transactions in the short and medium term. BlackRock's purchase of HPS highlights the growth in this sector globally. The flexible and bespoke solutions on offer from alternative lenders – spanning credit funds to direct lending arms of traditional banking institutions – further supports M&A activity. With no shortage of liquidity available, the M&A market is poised to benefit.
Due diligence
The average time for due diligence has increased from 124 to 203 days since 2021, dubbed 'the year of M&A'. Buyers and investors are taking more time to understand businesses' fundamentals without the skewing effects of Brexit, COVID or supply chain issues. This has resulted in deals staying in the DD phase for longer and extended preparation times.
Outlook for the remainder of 2025
We anticipate a strong year for M&A in the financial services sector across Guernsey and Jersey. Regulatory pressures continue to encourage consolidation, and the private equity market expected to be buoyant with plenty of 'dry powder' and with further interest rate cuts anticipated, creating demand across sellers, buyers and targets.
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