Global Financial Services Market 2022:
Challenging to say the least
The global financial services market underwent a significant change in 2022 as the world economy struggled to recover from the effects of a protracted epidemic. However, the deal volume from 2021 did not produce a straightforward figure that could be easily repeated. Therefore, as economic and geopolitical volatility took its toll, businesses appeared to have started concentrating on concluding the correct deals to support strategic growth and capital returns rather than expanding the volume of deals.
Dealmakers faced severe hurdles from the present uncertain macroeconomic market environment, which included slower GDP growth, inflation, rising interest rates, geopolitical tensions, and the aftermath of cryptocurrency failures. Additionally, supply chain disruptions, which affect the FS business indirectly, competition for highly skilled labor, and demand-accelerated digital and cloud transformation posed a new set of challenges for value generation.
Inflation and geopolitical uncertainty are currently impacting decision-making, suggesting that the remainder of 2022 may be difficult for the global financial services sector in terms of M&A and capital market activity. However, investors have expressed concerns about a possible recession, which might increase defaults and stimulate activity across the sector.
The following key developments had a strong bearing on M&A and Capital markets’ activities across the global financial services market:
- Global political instability, which has led to historic inflation and global economic uncertainty
- Dampened valuations and higher financing costs reduced investors’ interest in taking risky bets
- Spotlight on divestitures of non-core assets as businesses attempted to strengthen their balance sheets and make their business models more resilient
- Financial sponsors’ cautious approach to deploying their “eager capital”
- More stringent regulatory approval process ensured there were lesser mega deals
- Though pricing improved in the second half of the year, rapidly rising interest rates created a material impact for banks that have meaningful security portfolios and created challenges for buyers