Due to its large size, considerable diversification and complexity, the financial services sector regularly generates a number of predictable trends and dynamics that give rise to capital needs and attractive investment opportunities.
Due to the nature and complexity of the products, pricing models and balance sheets of companies within the financial services industry, as well as market events such as natural catastrophes and credit crises, companies or entire sub-sectors within the financial services industry may experience capital deficiencies.
Most sub-sectors of the financial services industry remain highly fragmented, which creates opportunities for strategic acquisition financing and for “roll-up” strategies. Deep industry experience is required to identify these trends proactively and to source and structure investment opportunities.
Strategic Shifts by Larger Companies
Many larger financial services companies have undergone alternating periods of expansion through acquisitions followed by contraction through divestitures aimed at refocusing operations on core business lines.
Cyclicality and Market Dislocation
The cyclicality of many sub-sectors of the financial services industry offers investment opportunities arising from market dislocation. During their emergence from cyclical troughs, existing strategic competitors often lack the resources or focus to deploy capital in the early stage of a sub-sector’s recovery.
Niche Growth Opportunities
The large size and fragmentation of many sub-sectors of the financial services industry offer the opportunity for smaller franchises operating in niche markets or possessing unique distribution or product capabilities to gain market share. Specialist companies have often emerged in these niche markets.
Complex Ownership Conversions
Many companies in the financial services industry possess complicated and evolving ownership structures. The insurance and banking industries include many companies that are owned by their policyholders or deposit holders, respectively. Many of these mutual companies continue to seek conversion to stock ownership, driven by the need to access the capital markets and provide equity-linked management incentives.