What is density in mergers and acquisitions

The number of bank mergers will increase

More and more institutions are joining forces in the competitive German banking market. And this trend will continue, say experts. Private equity investors are also showing interest. But this only applies to certain areas.

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Reports about bank mergers, especially by smaller institutions, have not been uncommon for years, especially in the cooperative sector. For example, on April 20, the Frankfurter Volksbank decided to merge with VR Bank Alzenau. But there is also movement in the savings bank warehouse. For example, Sparkasse Memmingen-Lindau-Mindelheim and Kreissparkasse Augsburg recently announced that they want to merge by the end of the year.

2019 | OriginalPaper | Book chapter

Corporate governance and regulatory aspects in M&A transactions in the German financial market

Regulatory requirements for banks and companies have increasingly come to the fore, and not just since the UK's Brexit decision. In December 2013, KPMG published a study that looked at the "effects of regulatory requirements". The continuously increasing regulatory requirements and their effects on the banking business were examined.

Avoid the decision-making vacuum after the merger

In order for a merger to succeed, Springer author Alfred Burkhart recommends in his article "Making employees capable of acting faster" in the November issue of Bankmagazin Kreditinstituten that management positions should be filled quickly after a merger. "Otherwise there will be a decision-making vacuum that acts like a fire accelerator in the case of unstable structures and processes," explains Burkhart.

According to Burkhart, employees and managers behave defensively in a merger because they have something to lose, for example material possessions and well-established routines. From the point of view of the expert, this fear of loss also explains "why the middle and upper management levels are particularly persistent in resisting change".

Burkhart also quotes Gerald Schmola, professor at the Hof University of Applied Sciences, in his article, who names possible reasons for unsuccessful merger projects in the integration phase:

  1. Lack of a clear strategy in relation to the company being acquired
  2. Competition for leadership positions
  3. Overriding the interests of the employees
  4. Underestimating the length of the integration period
  5. Insufficient consideration of the different corporate cultures

Many upcoming mergers at Europe's banks

From the point of view of the experts at Bain, a wave of consolidation in the European banking market is only a matter of time. And especially in Germany there are a much larger number of credit institutions compared to other international markets. These are the results of an M&A report by the management consultancy that was published on March 19. According to data from the current bank office report, a total of 1,494 institutions had to report to the Bundesbank in February 2021. At the end of 2019 there were 1,534 money houses. According to Statista, there were around 4,471 financial houses in all countries in the euro zone in 2019.

"The main driver for M&A transactions is the continuous transformation of the business models of many financial service providers in response to regulatory changes, the market entry of fintechs, digitization and the ongoing low interest rate phase," explains Ralf Baukloh, partner in the financial services division at KPMG, to Springer Professional . Because there is currently no prospect of improvement, from the point of view of the expert, banks in particular are being forced "to separate themselves from unprofitable business areas by carve-outs or to build up the necessary expertise or minimum size by taking over smaller specialists or competitors".

Commission business is interesting

"Specialists who can generally earn higher margins due to tailor-made solutions are considered attractive targets to expand the business model of larger houses with further core competencies and profitable products," says David Vogeler, Senior Manager Financial Services at KPMG. He also sees the trend that more and more foreign private equity investors are interested in the German financial industry. According to Vogeler, the focus here is primarily on the commission business of private banks, asset managers and insurance brokers.

Whether Corona and the feared bankruptcy wave will have a direct impact on the number of mergers remains to be seen from Baukloh's point of view and is "difficult to assess in the current situation and due to the complex situation, especially against the background of the various government aid packages". The expert expects, however, that the number of bad loans at the credit institutions will increase again.