M&A is high on the agenda for the majority of financial services firms, according to a new survey from Johnston Carmichael.

The accountancy and business advisory firm’s Financial Services Sector Annual Survey 2024 showed that more than nine in 10 financial services firms are considering mergers and acquisitions as a means of growth, with two in five respondents identifying M&A as a major part of their growth strategy.

Over half of businesses (52%) said they would be interested if the right opportunity arose, and only 4% said they were not looking to pursue M&A activity. 

A range of motivations were cited for seeking M&A, including building economies of scale, whether by expanding balances or increasing customer numbers (46%) while innovation – particularly acquiring new technologies, products, or capabilities – was noted by 44%.

According to Johnston Carmicheal, the survey, completed by around 300 senior professionals across retail banking, insurance, wealth and private asset management, is evidence that while there is an appetite for M&A, businesses are realistic about the challenges of M&A activity.

Pre-deal, due diligence is a key concern for most firms, as is designing an operating model that can forecast when the benefits of a deal will be realised.

Post-deal, 40% said that merging technologies is a significant hurdle, as is ensuring operational continuity. Challenges such as integration planning, programme delivery, governance and compliance, as well as cultural alignment were cited by 30-40% of respondents.

The survey also shows that technology continues to play a dominant role in the financial services sector.

Over half of firms (53%) are planning substantial investments in the next two years, including the automating of key processes, scaling up their use of AI, and updating their cybersecurity. 

For CEOs, the top priority for technology investment is to improve customer experience, while other senior executives, including COOs and CFOs, see new tech as the best way to enhance data protection and support operational efficiency.

The main challenges to adopting new technology was the cost of investment, cited by 45%, followed by concerns around data quality and integration (36.6%), regulatory compliance (35.9%), and employee resistance (35.9%).

Ewen Fleming, head of financial services at Johnston Carmichael, said: “Our survey findings reflect some significant shifts in the financial services marketplace, yet the pre-eminence of the big 6 in retail banking remains, as scale is seen as a vital factor in achieving success.

“Now we are seeing further consolidation across retail banking, including Nationwide’s acquisition of Virgin Money and Coventry Building Society looking to buy The Co-operative Bank, and others are likely to follow. 

“Firms are looking for growth and to enhance their competitive positioning by bringing in new capabilities and acquiring customers and their balances. With funding rounds by fintechs becoming more difficult, businesses that offer something truly unique in the marketplace have the best chance of successfully scaling and operating as profitable independent brands.”

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This year has seen high profile deals from big names in the financial industry. Most recently, significant portions of Tesco Bank’s retail business were acquired last week by Barclays in a ten year deal that will see the bank roll out Tesco branded savings and loan products, encompassing around £8.3 billion in balances, with the promise to back further innovation.

Last month, Nationwide completed its £2.9 billion acquisition of Virgin Money, following the CMA greenlighting the deal back in July, making it the biggest UK bank takeover since the 2008 financial crisis.