Cautious optimism for a pick-up in financial sector M&A activity in 2025, with mega-deals making a comeback and deal value increasing.
There is cautious optimism about financial sector M&A activity in 2025. This builds on the positive momentum of 2024, which saw a rise in the number of mega-deals and an increase in their aggregate value despite low overall deal volumes. While some of the headwinds that held back activity in 2024 have eased, the industry still faces uncertainty from macroeconomic conditions, geopolitical instability, and margin pressures in a highly competitive and highly regulated environment.
M&A remains a key strategic tool for financial services players to adapt, transform their business models, and sustain growth. In 2025, deals are expected to focus on both revenue growth and profitability, through expansion into new markets and the adoption of technologies needed to remain competitive. For example, banks can acquire or partner with fintech companies to meet growing technology needs, meet changing customer expectations, or adapt to trends such as embedded finance. Selling non-core or underperforming assets can free up capital for investment in more promising areas.
There is already increased interest in large deals, and this trend is expected to continue in 2025. Mega-deals in 2024 (worth more than $$5 billion) include:
- Capital One's $$35.3B bid for Discover Financial Services in the US
- proposed $$14.5 billion merger of Guotai Junan Securities and Haitong Securities in China
- proposed €$13.4 billion merger of BBVA with Banco Sabadell in Spain
For this reason, and given the different rates of economic growth across countries, one can expect increasing regional differences that will influence where exactly M&A activity is concentrated.
Scale and synergy
In the asset and private equity sector, growth through acquisitions allows companies to increase the scale of their operations and strengthen their positions in areas such as private credit and alternative investments. Buyers are able to improve the customer experience, thereby increasing their competitiveness.
For banks, such deals help them achieve the necessary scale to cope with the rising costs of meeting new and existing capital requirements. They also allow them to more effectively spread the costs of technology investments across a broader asset base.
Rethinking the business model
The financial services ecosystem is rapidly changing, driven by technologies that are transforming business models and new players are facing increasing competition. Financial services players need to systemically rethink their entire value chain: distribution channels, customer interactions, technology platforms, and other key aspects of their operations. This allows them to find new approaches to doing business and remain relevant in a rapidly changing market.
Such transformations are becoming especially important in the context of the growing influence built-in finance (embedded finance) and open banking (open banking), which change the logic of the entire industry.
The need for transformation is becoming one of the key drivers of M&A transactions, opening up opportunities for cross-sectoral deals — extending beyond the traditional financial sector to include areas such as technology, consumer markets, healthcare, automotive and other industries.
Private lending
The private lending market is growing rapidly, with Preqin estimating that assets under management in this segment will increase from nearly $$1.7 trillion in 2024 to $$2.4 trillion by 2028. This growth is having a significant impact on financial sector deals, including in the following areas:
- Investment companies and non-bank financial institutions acquire private lending firms to diversify their product lines and increase their share of stable fee income.
- Private Lending Funds absorb each other to increase market share, and also acquire companies with specialized expertise in niche or poorly covered segments, expanding geography and product offerings.
- Banks are reviewing their operating models and considering partnerships or mergers with private lenders to remain competitive in the private debt financing segment.
- Asset managers acquire insurance assets to gain access to manage large, long-term capital reserves of insurance companies. This, in turn, stimulates further demand for private lending.
Private capital
Private equity funds are expected to be active in both buy and sell activity in 2025.
From the buyer's side PE investors will focus on scalable and fee-based business models, including:
- insurance brokerage companies
- payment solution providers
- independent financial advisor boutiques
- private equity management companies,
- service companies in the field of asset management.
Availability of capital is unlikely to be a limiting factor: funds continue to look for attractive investment targets to use their accumulated “dry powder”.
From the seller's side Exits are expected to increase as PE funds come under pressure from limited partners to return capital. In fact, there has already been an increase in pre-sale activity, creating the potential for more exits in 2025.
Strategic partnerships
Financial companies are increasingly considering strategic partnerships not only as a way to increase revenue, but also as a tool for optimizing costs and monetizing their own technological developments — for example, through SaaS models and technology alliances. Such collaborations allow for the use of joint sources of income, as well as strategically optimizing internal processes, increasing efficiency and reducing costs.
Over the past decade, the fintech sector has dramatically changed the global financial services landscape, blurring the boundaries between sectors and forcing traditional players to rethink their business models, opening up new opportunities for M&A deals. Despite a sharp decline in venture capital funding over the past three years, fintech remains a growing and increasingly important segment for customers in many countries, positioned to benefit from the ongoing transformation of the banking industry.
Fintech development creates opportunities for deals
Amid a challenging IPO market and a decline in venture funding over the past few years, many fintech companies have been forced to improve operational efficiency and refine their business models. This has led to some players becoming potential acquirers for expansion in the region, while others are attractive targets for strategic investors looking for growth.
Traditional financial institutions have been investing heavily in developing their own fintech capabilities in recent years, opening up opportunities for transactions and monetization through FTAs. software as a service (SaaS). These agreements cover the entire spectrum of solutions, from payment systems and automated KYC/AML to compliance and AI.
We expect this trend to continue and drive M&A activity, particularly in the three largest fintech segments:
Digital payments and transfers
Digital lending
Business Process Management and Analytics
Despite the significant challenges of recent years – funding cuts and market revaluations – the fintech sector has demonstrated high resilience and dynamic development. We expect this trend to continue in 2025 and beyond.
Lower interest rates and growing interest from international investors seeking to rebalance their portfolios will help diversify funding sources and reduce reliance on venture rounds. This is likely to lead to increased M&A activity in the region, increase consolidation processes, and facilitate alliances with traditional financial institutions and technology companies.
