Financial inclusion set to unlock $200bn in revenue, claims new report

BY Fraser Tennant

Improving financial inclusion for micro, small and medium enterprises (MSMEs) in 60 emerging countries could generate incremental global annual revenue of $200bn, according to a new report by EY.

In ‘Innovation in financial inclusion: revenue growth through innovative inclusion’, EY states that the availability of affordable, accessible and relevant financial products will generate sizeable economic benefits – equivalent to 20 percent of emerging market (EM) banks’ 2016 revenues. Greater financial inclusion will also boost GDP by up to 14 percent in developing economies such as India, and 30 percent in frontier markets such as Kenya.

Furthermore, more than 40 percent of MSMEs in the least developed countries reported challenges in obtaining financing. This compares to 30 percent in middle-income countries and 15 percent in high-income regions. Traditionally, banks operating in EMs have not viewed financially excluded individuals and MSMEs as profitable target customer segments.

“There is a multitude of opportunity for banks to increase profits by being more financially inclusive,” said Jan Bellens, EY global banking & capital markets emerging markets leader. “Not only does financial inclusiveness have a positive impact on financial institutions’ bottom line, but it is also good for local economies and individuals as inclusiveness tends to smooth income trends, grow local businesses, protect against natural and man-made disasters and helps individuals to save for important life events.”

EY notes that banks’ financial inclusion growth opportunities will be the greatest in markets that embrace technology-led innovation and that have a clear and supportive policy framework for financial stability. Drivers of technology infrastructure include mobile adoption and e-payments, national digital identity systems, credit data infrastructure, open access to digital data and currency digitisation. Policy and systemic drivers include strong customer safeguards, responsible financial literacy programmes, bankruptcy regimes, regulatory incentives for banks, diverse financial ecosystems and interoperable financial systems.

The report also suggests that banks which focus on the following three actions will be most successful in the realm of financial inclusiveness: (i) customise offerings to raise relevance and deepen account adoption; (ii) innovate channels to reach more customers at lower cost; and (iii) creatively manage risk to address absence of credit histories.

According to the report, “institutions that act now to increase financial inclusion will be well-placed to dominate retail and MSME banking in EMs for years to come".

Report: Innovation in financial inclusion – Revenue growth through innovative inclusion

US VC investment exceeds $84bn in 2017 following strong Q4, highlights new report

BY Fraser Tennant

Building off the “optimism and momentum” that has returned to the US and global markets in recent months, venture capital (VC) investment in the US rose to almost $24bn in Q4 2017, according to data published this week by KPMG.

In its ‘Venture Pulse Q4 2017: Global analysis of venture funding’ report, KPMG states that the level of VC invested in Q4 ($23.75bn) – up from $21.24bn in Q3 2017 – helped to make 2017 the strongest year of VC investment since the dotcom bubble.  

The strong VC investment in Q4 2017 was aided by the $1bn-plus funding rounds of three US-based companies: ride-hailing company Lyft ($1.5bn), cancer-screening biotech Grail Technology ($1.2b) and the automotive company Faraday Future ($1bn). 

“In 2018, we expect VC activity in the US to build off the optimism and momentum that has returned to the US and global markets,” said Brian Hughes, national co-lead partner, KPMG LLP’s Venture Capital Practice in the US “This should also be helped by stronger exit markets in both IPO’s and M&A activity for VC-backed companies.”

The report also notes that deal volume declined in Q4 2017 – down from 1997 in Q3 2017 to 1778 deals in Q4 2017 – as investors focused on placing bigger bets on a smaller number of companies that they believed had a stronger path to profitability.

In addition to the three $1bn-plus funding rounds, the US also saw numerous $100m-plus rounds, with the top 10 deals accounting for more than one quarter of the total investment during the quarter.

In terms of sectors and industries, VC and corporate investor interest in healthtech and biotech grew significantly in 2017, with a number of large deals completed in Q4 2017. Healthcare companies also topped the charts in terms of exits, which helped boost overall activity.

“While there is no indication that we will return to the level of IPO activity we saw in 2015, there is a likelihood that 2018 will see an increased number of IPOs,” said Conor Moore, national co-lead partner, KPMG Venture Capital practice in the US. “However, the secondary market is poised to see even greater growth as many companies choose to remain private for longer.”

As far as global VC investment is concerned, a strong Q4 2017 across the Americas, Asia and Europe helped propel the global VC market to a record level of annual investment for 2017 of $155bn.

Report: Venture Pulse Q4 2017’ – Global analysis of venture funding

Carillion collapse could cause supply chain woes

BY Richard Summerfield

With debts of around £1.5bn – including a £600m pension deficit – construction powerhouse Carillion Plc has entered liquidation, threatening the jobs of around 43,000 people worldwide, including 20,000 in the UK, and thousands more in the firm’s global supply chain.

Critics have suggested that Carillion’s expansion plans in recent years were too ambitious and its overreliance on debt were the two the most telling elements of its collapse. According to Bloomberg data, net debt to equity doubled between 2012 and 2016, from 15 to 30. While Carillion did attempt to cut costs and dividends, the company’s efforts were too late, beginning in earnest in 2017.

The liquidation of the UK’s second biggest construction company on Monday has created a crisis in the UK’s construction industry, with the future of major projects, including as yet unfinished hospitals, currently in doubt.

Carillion’s collapse came after talks between the firm, its lenders and the government came to conclusion with no deal in place to save it. Companies working for the firm on purely private sector deals will only have two days of government support, according to Cabinet Office Minister David Lidington. In 2016 Carillon spent £952m working with local suppliers, and according to the trade body Build UK, anywhere between 25,000 and 30,000 small businesses are owed money by the company.

Carillion is responsible for hundreds of public sector projects in the UK and is a provider of a number of key public services, including the management of military bases for the Ministry of Defence, providing facilities management for hospitals, courts and schools, and is a key partner in a number of nationally important infrastructure projects, such as the new HS2 railway line.

The company had hoped to receive a bailout from the government in the region of £20m, a sum which it hoped would encourage banks to follow suit. However, the government was unwilling to intervene. As a result, Carillion was plunged into liquidation, rather than administration, as it had very few sellable assets.

PwC will be providing six ‘special managers’ to advise David Chapman, a civil servant working for the Insolvency Service, who has been appointed as the company’s liquidator. The company’s shareholders will receive nothing as a result of the collapse.

Carillion ran into financial difficulties last year after issuing three profit warnings in five months and writing down more than £1bn on the dwindling value of contracts in the UK, the Middle East and Canada. Yet, despite these warnings, the company continued to receive lucrative contracts from the government, prompting some serious questions of the government’s sourcing practices.

News: Britain's Carillion collapses

Confidence down as cyber threat grows

BY Richard Summerfield

Cyber threats are evolving all the time, and while cyber criminals become more sophisticated and better equipped, it is the responsibility of companies to ensure that they are well prepared for any attacks. Yet, according to a new report from Alert Logic, many organisations lack confidence that their systems can withstand an assault.

The ‘Threat Monitoring, Detection and Response Report’ notes that companies are increasingly under attack from ransomware and phishing, and frequently experience data losses (these are the three biggest concerns for companies). Yet many cyber security executives in the UK are unconvinced that their company’s overall security posture is adequate.

Just 42 percent of the 400 executives surveyed indicated that they were moderately confident about their company’s ability to repel an attack. Thirty-two percent of executives felt that their company was more likely to experience a cyber breach in the next 12 months, compared to a year ago. Twenty-nine percent believed a breach was less likely, 22 percent did not expect the threat to change and 17 percent were unsure.

Many companies expressed concern about their ability to resist attacks. Primarily, executives believed that a lack of budget (51 percent), a lack of skilled personnel (49 percent) and lack of security awareness (49 percent) were the most significant obstacles facing security teams and the biggest barriers companies face when trying to defend themselves from attack.

Insiders are another growing concern for respondents. Fifty-four percent of those surveyed perceived a growth in these threats over the past year. Indeed, inadvertent insider breaches were cited as the biggest internal threats companies faced (61 percent). Insufficient user training contributed considerably, with 57 percent of respondents claiming that improving training would help overcome internal threats.

Yet despite the increased profile of cyber threats in the media, many cyber security executives do not expect to see their budgets increase substantially. Only 32 percent expect to get more, while 9 percent expect to receive less and 54 percent anticipate the same level.

A number of organisations are utilising threat intelligence platforms to respond to attackers.  Forty-seven percent of respondents reported that they were deploying open-source threat intelligence. Thirty-seven percent claimed that they uses a range of commercial vendors. Forty-nine percent claimed that the use of threat intelligence platforms had a positive impact on reducing data breaches.

Report: Threat Monitoring, Detection and Response Report

Global M&A broke $3 trillion barrier in 2017 despite geopolitical uncertainty says new report

BY Fraser Tennant

Global mergers & acquisitions (M&A) activity broke the $3 trillion barrier in 2017 despite continuing geopolitical uncertainty, according to a new report by Mergermarket.

In its 2017 global M&A trend report, the business intelligence and research group reveals that last year M&A investment fell just short of previous years, dipping 3.2 percent by value to $3.15 trillion (across 18,433 deals) in comparison to the $3.26 trillion by value seen in 2016 (across 18,592 deals).

“In spite of geopolitical uncertainty around the world, global M&A has remained robust – marking the fourth successive year breaching the US$ 3tn barrier”, said Jonathan Klonowski, research editor (EMEA) at Mergermarket. “The pace of M&A set in 2015 and 2016 was always going to be difficult to replicate and while politics has undoubtedly had an effect, it has not been to the levels that many had been predicting.”

The report also notes that December 2017 saw the largest monthly total of the year, with five megadeals announced in the final month, including the two largest deals of the year – The Walt Disney Company’s acquisition of Twenty-First Century Fox’s entertainment assets for $68.4bn and the $67.8bn tie up between CVS and Aetna.

Furthermore, cross-border activity has once again been a key component of M&A in 2017. As confidence wanes in several regions, dealmakers appear to be pursuing a strategy of spreading risk and over-consolidating within home markets – despite ongoing global geopolitical uncertainty.

In terms of sector activity, technology hit its highest annual deal count as investors look towards the latest developments in the industry, such as the Internet of Things (IoT), autonomous vehicles and blockchain. In addition, a surge in the consumer sector was reflected in the acquisitions of Reynolds America, Luxottica and Whole Foods, with six takeovers in the sector worth over $10bn.

“The next wave of technology is driving M&A across all sectors as people change the way they consume media, products and services”, said Mr Klonowski. “Traditional firms have had to react to new names and offerings which simply did not exist a number of years ago, while technology creeps further and further into every sector. In such a fast-paced environment, firms are looking towards a ‘buy’ mentality, rather than to ‘build’ themselves.”

Leading the financial adviser rankings, having advised on 315 deals globally worth $878.1bn, is Goldman Sachs & Co.

Report: 2017 Full Year Global M&A Trend Report: Legal Advisors