Mergers and acquisitions in the financial services industry will continue to be challenging in 2024, a recent PwC report has forecast.

But the 2024 outlook of global M&A trends in financial services also noted that the insurance sector remains resilient as broker consolidation, portfolio optimisation, competition and tech partnerships drive deals.

PwC said: “Many financial services dealmakers entered 2024 with a greater sense of optimism, reflecting on 2023 as a low point in which uncertainty created by macroeconomic factors such as high inflation, rising interest rates and lower economic growth projections, dampened M&A activity.

“While macroeconomic conditions and geopolitical tensions remain challenging, recent gains in the financial markets and positive signals about interest rates from central banks are slowly inspiring the return of investor confidence.”

PwC said the challenging market environment creates a strong headwind for market participants to consider M&A transactions.

In its 2024 outlook, PwC expects to see dealmakers favouring smaller transactions, rather than megadeals, to facilitate transformational steps. The number of megadeals fell from 21 in 2021, to seven in 2022 and to just three in 2023.

A PwC statement said: “We also expect deal processes to last longer, with analyses becoming more complex.

Current market conditions—combined with necessary ongoing initiatives such as digitalisation, sustainability and workforce challenges—put pressure on FS players to accelerate their transformation to remain relevant and profitable.

“We expect that M&A, strategic partnerships and alliances in 2024 will focus on deals to leverage data, implement solutions to rising cybersecurity concerns, drive operational efficiencies, and speed up transaction processes.

“Besides internal measures, M&A continues to be an essential part of the transformation journey, especially as organic growth faces severe challenges in the current macroeconomic environment.

“M&A-related transformation steps may include acquisitions to enhance capabilities and drive future growth through economies of scale and scope. Alternatively, divestitures may help to improve operations and recalibrate business models.”