U.S. News

Financial Services Become Latest Target of Private Equity: Report


Private equity is all the rage -- and while financial services companies typically have been shielded from such deals, that's beginning to change.

"Historically, the financial services industry was insulated from private equity transactions owning to regulation and inherently high leverage," said Melissa A. Roberts, an analyst with Keefe, Bruyette & Woods, in a research report. "However, private equity is increasingly more active in financials, including data processors, subprime lenders, property and casualty insurers and auto finance businesses."

Private equity has accounted for a growing percentage of overall merger and acquisition activity, with leveraged buyouts accounting for 25% of all M&A volume last year. In fact, eight of the 10 largest U.S. private equity buyouts of all time have been announced in just over the past 12 months, KBW says. And today's market conditions continue to support those deals.

"The market's current love affair with private equity reflects the combined impact of low-cost debt, global liquidity, demand for high yield investments, solid credit and increased fund inflows from institutional investors, hedge funds and pension funds," Roberts said, adding that lending standards have also been loosened, so banks are more willing to loan money to private equity firms.

KBW, a boutique investment bank specializing in financial services companies, recently penned a report that revealed potential private equity targets:

Potential Private Equity Targets