Private equity and financial services: predictions for 2025

In still tepid M&A markets, the financial services sector has been a bright spot for deal activity. European financial services M&A volumes climbed by 22% year-on-year in 2024 to reach 784 transactions, the highest volume since 2015, according to EY analysis. Ten of these deals were worth more than €1 billion, which pushed total disclosed deal value for 2024 up €52 billion – a 43% increase on 2023.

An active financial services deal market, coupled with opportunities to digitalise financial services business models and consolidate certain market segments all contributed to sustained buyout investment in the sector.

Entering 2025, financial services is set to remain a key channel for ongoing private equity capital deployment, as sponsors seek to accelerate dealmaking and deploy the record $2.62 trillion of private equity and venture capital dry powder that accumulated globally through a prolonged lull in deal activity.

After an active 2024, an even stronger year for private equity deal flow in the financial services space is anticipated.

We predict that the following key sub-sectors will drive financial services PE deals over the next 12 months.

1. Insurance

Insurance broking has delivered solid returns for private equity dealmakers over the years, and the sub-sector will retain enduring appeal for private equity firms in 2025.

Even though there have already been a cluster of private equity deals and consolidation plays in the space (with Ashurst involved in several of these deals) the insurance broking sector remains highly fragmented and ripe for consolidation.

Over the last 12 months we have seen a notable uptick in PE enthusiasm for deals in the insurance sector as a whole (not just broking). McKinsey analysis shows that global private equity investment in insurance companies has barely skipped a beat through the interest rate dislocation of the last two years, with insurance distribution and speciality insurance products a particularly busy area for financial sponsors. Investors are attracted to growth rates that have consistently exceeded GDP expansion for a sustained period.

Attractive underlying growth fundamentals and the opportunity to implement consolidation strategies will ensure insurance M&A stays firmly on the radar for financial sponsors in 2025.

2. Financial institution “adjacent” assets

In a search for stronger growth opportunities many financial sponsors have recently broadened their investment strategy to include FIG-adjacent assets.

The key feature of these FIG-adjacent assets is that they tend to be "regulatory lite" and less capital intensive, but still benefit from (and in some cases drive) the wider growth of the FS sector. More often than not, these companies will straddle financial services and technology, and include providers of specialist, mission-critical technology; or key support services in areas such as compliance, fund administration, reporting and/or transaction processing.

J.C. Flowers, for example, backed loan servicing business Pepper Advantage, while TPG and CDPQ acquired Aareon, a SAAS integrated payment solution for the real estate industry, from Aareal Bank and Advent.

We are increasingly seeing that financial sponsors like the idea of being able to leverage their specialist financial institutions strategies with targets that have a strong technology angle, and benefit from the associated valuation upside that technology assets enjoy.

The rise of interest in FIG-adjacent assets also aligns with the broader industry trend towards digital transformation and operational optimisation, with financial institutions recognising the value of integrating advanced technology and specialised services to drive growth, improve efficiency, and stay ahead in a competitive market.

3. Wealth management

The wealth management space, including retail investment platforms such as Hargreaves Lansdown (which was taken private by a consortium of buyout investors, including CVC Capital Partners, Nordic Capital and Abu Dhabi Investment Authority) and independent financial advisers (IFA), will continue to provide financial sponsors with attractive opportunities to execute buy-and-build consolidation strategies and drive topline growth by implementing digitalisation programmes.

In the retail wealth management space, for example, established incumbents have encountered intense competition from digital-first rivals, resulting in elevated levels of customer churn as consumers flip to alternative providers with slicker, fully digitalised platforms.

For private equity firms there is an opportunity to buy these large platforms at attractive entry multiples and leverage digital know how, built up in other portfolio investments, to invest in automation and digitalisation, bring down fees, and improve customer retention.

There is also a consolidation opportunity in the retail wealth management platform, with the adjacent IFA space offering an even more compelling case to consolidate a fragmented industry.

According to Financial Conduct Authority figures, there were close to 6,000 retail financial advisers operating in the UK alone at the beginning of 2024. In continental Europe the market is even more fragmented, providing additional opportunities for PE-backed consolidation.

As compliance, regulatory, insurance and technology costs become increasingly difficult to shoulder, however, the value of operating under the umbrella of larger entities is becoming ever more appealing for IFA professionals, providing private equity firms with attractive opportunities to unlock value and achieve economies of scale via buy-and-build strategies.

The option to sell to a PE firm or PE-backed platform will also appeal to smaller, founder-led IFA businesses that will have to address succession and generational issues as founders approach retirement and seek liquidity to hand over to the next generation. PE buyouts offer this liquidity, as well as the capital to incentivise the next generation with sweet equity.

4. Banks

While there is unlikely to be a high volume of private equity buyouts of banks, we do expect to see managers with the necessary scale and specialist banking expertise pursuing bank deals.

The impact of rising interest rates on loan books and the implementation of the latest Basel III capital adequacy requirements (albeit delayed) will present PE firms with chances to invest in mid-tier and regional banks, as will potential secondary buyout opportunities as private equity firms that invested in banks in the aftermath of the global financial crisis seek exits.

Buyout interest in mid-tier banks, which peaked in 2021 but fell away as interest rates increased and vendors pushed for higher prices, is reemerging as rates come down. The consolidation of the European banking sector has been anticipated for many years, and with the right platform private equity could benefit from broader momentum behind consolidation, although regulatory and political hurdles to bank consolidation are not to be underestimated.

Despite these complexities, deals are emerging. Danish bank Saxo Bank is the most recent banking asset to receive interest from private equity bidders, with regional consolidation plays in CEE and the Balkans also on the radar.

Consolidation in the neobank and digital bank space is also on the cards, as the sector matures and comes to an inflection point.

The neobank and digital bank space has grown at pace through the last decade, but market winners are emerging, and are now positioned to consolidate a crowded market (Dealroom figures estimate that there are around 50 consumer-facing neobanks in Europe) as funding rounds for these entities become harder to secure. PE-firms active in the neobank space, with strong platforms already in their portfolios, will be well-set to lead consolidation in the space.

Secondary buyout opportunities could also come to market, as sponsors with banking assets seek exits. For some sponsors, a public listing of a bank asset may be the preferred exit route (for example, Lone Star-backed Novo Banco is rumoured to be among the potential IPO candidates), but in still choppy IPO markets, the deliverability of a PE buyer could come into play as an exit alternative.