Shaw & Co, the specialist corporate finance advisory firm, has launched the sixth in a series of 12 in-depth industry reports that offer SME business leaders a powerful benchmarking tool to aid their decision making.

The sixth report covers the Banking, Financial & Insurance Services (BFIS) Sector marketplace and segments over 2,100 businesses with earnings in excess of £1m by size and subsector to track their performance, profitability, debt levels and M&A activity.

The report’s key findings include:

• Major Opportunities: High profit margins of between 57-64% can be achieved in the BFIS sector, regardless of scale. This makes the industry highly attractive for new entrants that can compete on value and cost.
• Disruptor Threats: 18% of companies generate 85% of turnover within the sector. However, these mature businesses face a competitive threat from new fintech and insurtech entrants that are attracted by the aforementioned high profit margins.
• New Technology: Digital wallet adoption is the fastest adoption of any new technology in history and faster than the adoption of the internet. Such decentralised finance will bring challenges to banks, financial services companies and insurers - as well as regulators.
• M&A Activity: Analysis of M&A data shows that UK deal volumes across the UK were 57% higher in 2021 October compared to the same period last year (Source: Mark-to-Market).
• Covid-19: During the pandemic, the banks lent several decades of lending in just one year. Whilst this is a hugely commendable effort, it has naturally affected their current lending appetite. To maximise borrowing capacity, owners in this industry should also consider exploring the alternative funding market to support growth/acquisition strategies.

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"BFIS remains a very high performer in terms of profitability."

Rick Martignetti
Report editor

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Rick Martignetti, Manager - Debt Advisory, Shaw & Co, and editor of the report said: “BFIS remains a very high performer in terms of profitability which provides the perfect platform to reinvest retained profits (or borrow if preferable), scale through acquisition, and be the 'best-in-class', delivering product excellence.

“New fintech and insurtech entrants are disrupting established market players that must now adopt digital transformation to remain competitive. Unfortunately, SMEs are generally unaware of alternative growth funding options, including those with repayment terms of greater than 3-5 years. This leads to them using their own equity to fund growth or, sadly, abandoning growth initiatives completely.

“In terms of M&A then activity is buoyant with strong buyer appetite across most sectors. Although Covid-19 has hit some businesses hard, others have seen a strong boost in activity. In either case, the pandemic does not appear in general to have dented M&A activity and if anything, there appears to be a pent-up demand.”

A full copy of the report is available for free download here.