Financial services M&A deals reached $125b in 2021: KPMG

The deal value jumped from $11.35b in 2020.

Hong Kong experienced a continuing upward trend in mergers and acquisitions (M&A) activity in the financial services sector during the first nine months of 2021 (YTD Q321), according to KPMG's Financial Services M&A Trends in ASPAC report.

Deal activity in Hong Kong fell in 2019 due to social unrest but recovered in 2020 and 2021 despite the pandemic, reaching up to US$6.16b (HK$125b) in YTD Q321. The key drivers included the scale-up of local financial institution groups, fundraising for new digital banks, exits across the insurance sector, and financial investors showing interest in asset managers and money lenders.

Here are the trends per financial service sub-sector:

Asset management

Hong Kong reached US$4.5t (HK$35.13t) in assets under management as of December 2020, with 21% year-on-year growth. Foreign investment remained high because of a sophisticated equities market, a robust regulatory framework, and a favourable position as an investing gateway to China.

Banking

Large banks such as HSBC, Bank of China, Standard Chartered, and Bank of East Asia were interested in potential acquisitions and expansion in the non-bank sector, such as financial technology, insurance, and wealth management. The Hong Kong Monetary Authority also approved full digital banking licenses for eight virtual banks in 2020, with most partnering with traditional banks and large conglomerates.

Financing

Relaxed regulations such as the absence of capital requirements and low regulatory approval hurdles allowed money lenders to charge up to a 60% effective yearly interest rate. As a result, acquisition interest from financial investors in money lenders is high.

Insurance

Hong Kong's insurance premium per capita ranked second globally in 2020. Despite the high penetration rate in the mature market. growth potential remained strong, supported by the country's positions as an insurance hub. Case in point, AIA acquired BEA Life for US$700m (HK$5.47b) in 2021.

Financial technology

The payments market has adopted similarities with European and American markets, with tap payments dominating over QR payment and most shopping taking place offline. This proved how HK can see growth in new fintech paradigms with cloud POS proliferation, on-demand services, and rising e-commerce penetration driving online and O2O payment. The buy now, pay later scheme was also triggered by e-commerce.

(US$1 = HK$7.81)