External Factors in Financial Industry Mergers and Acquisitions
Posted April 27, 2018 in Articles
Mergers and acquisitions are commonplace within the financial industry. Banks merge, advisory firms acquire competitors with top talent and financial services providers trade as commodities for private equity investors.
Although these transactions occur on a daily basis, they are far from routine. Mergers and acquisitions in the financial industry can be extraordinarily complex, with numerous internal and external factors affecting not only price, but in many cases, the overall viability of the transaction as well. While internal factors can become a known quantity with the right due diligence, addressing external factors often requires a more-comprehensive and specialized analysis.
1. Regulatory Compliance
In many large-scale transactions, one of the most-significant external factors is the matter of regulatory compliance. The financial industry is heavily regulated in the United States and other countries around the world, and regulations at all levels of government can impact virtually all aspects of a merger or acquisition. From registration requirements to questions of whether a transaction would create a monopoly or raise other antitrust issues, regulatory matters can be exceedingly complex. Thus, in order to avoid last-minute roadblocks, they must often be considered at the earliest stages of a potential transaction.
2. Securities Concerns
Merger and acquisition transactions can raise a variety of potential securities-related concerns for public and private financial organizations. Whether a transaction involves taking a private company public, taking a public company private, or merging the operations of two public or private entities, there are a host of issues that will need to be addressed. In some cases, this can be a fairly straightforward matter of documentation. In others, it can involve significant interaction with the Securities and Exchange Commission (SEC) or other industry regulators. The nature of the transaction will determine the extent of the issues involved. However, with a clear understanding of the compliance burden, parties on both sides of the transaction can make informed decisions about the risks and costs of moving forward.
3. Public Perception
From data privacy issues to allegations of consumer fraud, entities in the financial services industries have faced no shortage of public relations crises in recent years. When evaluating a potential merger or acquisition, public perception of both the target entity and the market impact of the transaction require careful consideration. If there are actual or potential issues, can these be overcome over time? How will the transaction look and feel to each company’s customer base? Will the transaction create a new market powerhouse, or will it turn off potential customers who fear over-consolidation in the financial sector? These are important questions –questions that too often go overlooked when assessing the profitability of a potential transaction.
Contact Mithras Investments
If you are in the process of evaluating a potential merger or acquisition in the financial sector, Mithras Investments can help. We have extensive experience in the areas of due diligence, risk analysis and negotiations, and we routinely consult with banks, lenders and other financial services entities in the U.S. and worldwide. To get started with an initial consultation, call us at (305) 517-7911 or tell us how we can help online today.