The financial industry is undergoing structural change. Increasing regulatory requirements, the growing share of illiquid and alternative investments, and increasing margin and efficiency pressure are fundamentally changing business models in banks, asset management and insurance companies. In parallel, technology and digitization are moving from pure efficiency levers to an integral part of regulatory compliance.

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Right at the interface of financial services, RegTech (regulatory technology) and independent valuation and risk services, a market is emerging that is highly attractive from an M&A perspective. Regulation acts not only as a cost block, but as an engine of growth: New and stricter regulations increase complexity and make reliable, standardized assessment and risk processes mandatory. Independent, auditable providers with appropriate depth are becoming a scarce resource.

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At the same time, the market is highly fragmented. There are many specialized niche providers out there, but only a few genuine platforms. This combination of mandatory-driven demand, high entry barriers and fragmented supply creates ideal conditions for buy-and-build strategies in the RegTech and valuation segments. For entrepreneurs, this means that anyone who combines regulatory depth, technological scalability and a reliable track record becomes a sought-after target in M&A processes. A structurally growing market is opening up for investors, in which platform models have above-average value creation potential.

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M&A in Financial Services & RegTech: From Market Trend to Key Issue

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Financial markets in structural change

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Global financial markets continue to grow but are changing their structure in the process. In addition to traditional liquid investments, illiquid and alternative asset classes — such as infrastructure, private debt or private equity - are noticeably gaining in importance. At the same time, new product types such as digital securities, thematic or ESG-oriented strategies and complex structured products are being created.

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This diversity increases the requirements for assessment, risk and data management. The industry is moving from a comparatively homogeneous product world to an ecosystem in which different asset classes, terms, liquidity profiles and risk carriers are combined.

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Regulatory consolidation and operational overload

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This increasing complexity is met by ever denser and more granular regulatory packages. Legislators and regulators prescribe in detail how to measure risks, assess assets, process data, and prepare reports. Regulations such as PRIIPs, MiFID II, Basel III/FRTB, AIFMD/KAGB, Solvency II, IFRS 13/9/17, DORA, ESG Regimes and MiCA intervene deeply in institutions' processes.

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These requirements are not unique projects, but create permanent pressure to adapt. Many companies are reaching limits with internal teams and systems if they are to simultaneously develop new products, reduce costs, digitize and meet regulatory requirements. It is particularly demanding where illiquid or new asset classes have to be assessed and monitored in large numbers. External specialists are thus becoming a “nice-to-have” necessity.

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What does that mean for entrepreneurs and investors?

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Against this background, the key question is: How can entrepreneurs in RegTech, valuation and risk services, and investors use this regulatory-driven change to build platforms, secure growth and implement attractive M&A options?

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Regulation as an engine for RegTech and review platforms

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The answer is: Regulation is not just a compliance issue, but a strategic growth lever. It creates a structural excess demand for independent evaluation and RegTech solutions, increases barriers to entry and favors providers who combine methodological expertise, technology and auditing ability.

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Companies that clearly position themselves as solution providers for specific regulatory pain points and are technologically suitable as platform cores are becoming preferred targets in M&A processes. At the same time, investors have a clear playing field for buy-and-build strategies: Fragmented special capacities can be bundled into integrated, scalable RegTech and evaluation platforms.

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Financial Services Market Analysis: Three Value Chains

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From the perspective of valuation and risk services, there are three supply chains, which each develop differently, but are all heavily influenced by regulatory requirements. In the area of liquid asset classes - such as equities, bonds, funds, ETFs or standardized derivatives - the focus is on a high degree of standardization. This is primarily about processing large volumes efficiently, using consistent market data and providing transparent risk and cost information. Requirements from MiFID II and PRIIPs force institutions to present key figures, scenarios and product information in a comparable and understandable way. This creates a growing need for standardized evaluation and
analytical processes.

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The area of illiquid and alternative asset classes is much more complex. Infrastructure projects, private equity and private debt, real estate or structured special financing cannot simply be derived from market prices. They require model-based, often individual assessment approaches, in which assumptions, parameters and data sources must be transparently documented. AIFMD/KAGB, Solvency II and IFRS 13 require regular, verifiable and often independent valuations for these assets. This creates recurring demands for specialist know-how and external evaluation services.

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The third strand comprises risk-oriented assessment and management solutions. This involves recording market, credit, liquidity and counterparty risks, as well as operational risks such as cyber attacks, in a procedural and model-based manner. Volatile markets and geopolitical tensions are increasing the pressure to run scenarios, carry out stress tests and document the results in a regulatory manner that is reliable. Modern providers use algorithm-based forecasts, automated data feeds and integrated risk platforms for this purpose. Here too, regulation - such as Basel III/FRTB or DORA - is constantly increasing the requirements for depth, frequency and documentation.

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Without robust, comprehensible and technologically embedded assessment and risk models, regulatory requirements can hardly be met in the future.

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Regulation as a megatrend: How new standards are changing the rules of the game

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Regulation, ESG, and Technology

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The current market situation clearly shows that three drivers work together inextricably: regulation, sustainability and technology.

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On the regulatory side, the volume of regulations is constantly growing. New laws are being added, existing ones are being refined and tightened. At the same time, sustainability is enshrined in regulatory terms. ESG criteria are no longer voluntary marketing labels, but part of product rules, risk analyses and disclosure obligations. After all, technology is not only a means of increasing efficiency, but is itself subject to regulation: IT security, cyber resilience, data quality and process documentation have become explicit testing grounds.

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Anyone who wants to be compliant today therefore needs digital, integrated assessment and risk solutions that process ESG data, map regulatory requirements and run on a resilient technological basis. This is exactly where RegTech and specialized assessment providers position themselves.

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Overview of key regulatory drivers

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The interplay of several sets of rules, which address different parts of the value chain but are strongly interlinked in their effects, is particularly formative. PRIIPs and MiFID II increase the requirements for transparency and standardization of product information. They define which risk, cost and performance information an investor must receive and in what form. This forces institutions to set up assessment logics and risk models in such a way that they provide consistent key figures that can be issued and compared in a standardized manner.

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Basel III and the final implementation of the Fundamental Review of the Trading Book increase the requirements for modelling market and credit risks. They define granularly how risks are to be measured and how much equity must be set aside for backing. This significantly increases the importance of validated risk models, reliable data and regular model tests.

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In the fund business, AIFMD and KAGB ensure that the valuation of illiquid assets in particular is not left to discretion. They require regular, verifiable and, in many cases, independent assessments. Solvency II has similar effects on the part of insurers. Uniform or rough estimation methods are no longer sufficient. Methodically clean and documented assessment approaches are required.

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The IFRS regulations - in particular IFRS 13, IFRS 9 and IFRS 17 - incorporate balance sheet guidelines. They define what fair value valuations should look like, how expected credit defaults should be taken into account and how long-term obligations should be set. These requirements intervene directly in assessment models and risk forecasts and make them a central subject of external audit.

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There are also ESG regulation and the EU taxonomy, which integrate sustainability aspects into products, portfolios and reports, as well as MiCA as a framework for crypto and digital assets. Finally, DORA creates an EU-wide standard for digital resilience. Institutions must prove that their IT landscape, including the systems that deliver assessments and risk analyses, is robust, controlled and documented.

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Each of these regulations addresses a different segment, but together they massively increase the requirements for depth, reliability and automation of assessment and risk processes.

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From regulation to growth opportunity

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Crucially, these regulations not only generate additional work, but also create clearly identifiable growth opportunities. Many regulatory requirements can only be met efficiently with specialized methods, validated models, and scalable technology.

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Where PRIIPs and MiFID II require standardized indicators, there is a need for central evaluation engines and reporting services. Where Basel III/FRTB requires detailed market risk models, external validation, model libraries and specialized risk services are needed. Where AIFMD/KAGB and Solvency II require independent assessments, third-party providers with appropriate expertise are effectively integrated into the core of the process chains. And where ESG and digital asset regulations enforce new valuation logics and data sources, specialized RegTech and valuation platforms become indispensable partners.

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Regulation therefore acts like structural start-up financing for a market in which demand is generated not by economic activity but by obligation.

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External advice and evaluation as an operational standard

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A central effect of this development is the transition from selective to permanent integration of external assessments. What was previously used primarily for particularly complex or conflict-prone assets is now becoming the standard for entire asset classes or products.

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The complexity of the framework conditions strengthens the strategic role of independent evaluation processes. Regulators and auditors expect methods to be comprehensibly documented, assumptions to be clearly justified and results to be consistently reproducible. External providers that have standardized procedures, scalable technology, and seamless documentation are thus becoming an integral part of governance and control.

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To fulfill this role, external assessments must be deeply integrated into clients' systems and processes. It is not enough to provide an expert opinion once a year. There is a need for recurring, automated evaluation and validation processes that integrate seamlessly with risk reports, management information and regulatory reporting.

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Illiquid assets as a regulatory hot spot

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The need for specialized valuation providers for illiquid and structured assets is particularly clear. There are often no market prices here that you could fall back on. Instead, models must be developed that represent future cash flows, default risks, securities and scenarios.

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Regulatory frameworks such as IFRS 13 and AIFMD require that these models be applied in a comprehensible, market-oriented and consistent manner. At the same time, there is an increasing expectation that third parties - whether supervisors, auditors or investors - can understand and question the valuation logic. In practice, this means that independent valuation providers with special expertise for illiquid asset classes are permanently involved.

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This results in several advantages for these providers. They operate in a segment in which entry barriers are high because both deep technical expertise and solid technological infrastructure are required. And they operate in an area where demand cannot be deferred because regulatory deadlines and review cycles are binding.

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Track record and auditability as a ticket

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The tighter the regulation, the more important a reliable track record and proven auditability become. Banks, asset managers and insurers choose their evaluation and RegTech partners not only for functionality, but above all for reliability.

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Long-standing customer relationships, successful audits by supervisors and auditors, and documented model validations are becoming key selection criteria. In addition, regulated institutions themselves are subject to strict KYC requirements for their service providers. They check who they're working with very carefully.

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For providers, this aspect is both a curse and a blessing. It makes new entries difficult, but protects established players from imitators. Companies that actively manage and document their history, regulatory expertise and audit record are thus creating a key value driver - and a clear differentiation for their succession planning in the M&A context.

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RegTech market and demand profile in the context of regulation

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Against this background, the dynamics of the RegTech market are easy to explain. Many tasks that were previously completed manually or with simple tools can now only be efficiently performed with specialized software and integrated platforms.

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KYC and AML processes must process large amounts of data in real time, update sanction lists, monitor transactions and document suspicions. Reporting and regulatory reporting are becoming increasingly granular and, in addition to financial data, increasingly include non-financial indicators. ESG reporting requires access to new data sources, the evaluation of digital assets requires new valuation logics. DORA is also shifting its focus to ICT risks and digital resilience.

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Customers no longer want to manage a collection of individual tools. They prefer integrated solutions that cover multiple requirements at the same time. The wish is towards platforms that combine assessment engines, risk models, compliance functionalities and reporting modules.

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For RegTech and assessment providers, this means that their role is changing from a pure “tool supplier” to an infrastructure partner. Those who position themselves well here build up long-term, recurring income.

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Mergers & Acquisitions Landscape: Consolidation under Regulatory Pressure

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The transactions already observed in the market for valuation and risk services reflect this development. Global financial advisors, infrastructure providers and software platforms are acquiring technology-based assessment and analysis service providers to broaden their offerings along the regulatory value chain. Private equity investors are joining risk software houses to expand them into growth and consolidation platforms.

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Information and valuation service providers for real estate or specialized asset classes are being integrated into larger analytics and servicing platforms. Portfolio and risk management solutions are being expanded to include RegTech functionalities or completed through acquisitions. The underlying logic is always similar: Anyone who can offer their customers a more comprehensive, more integrated and regulatory robust solution secures a competitive advantage.

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For independent RegTech and evaluation providers, this creates an attractive area of tension. On the one hand, they are the target of this consolidation because they have know-how, technology and customer relationships. On the other hand, they themselves - with the support of investors - can act as the core of future organizations and grow through acquisitions.

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RegTech & assessment services as an ideal buy-and-build case

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From an investor's point of view, the sector combines several characteristics that make it particularly suitable for buy-and-build strategies. The offering is fragmented. Many companies serve individual use cases, asset classes or regions very well, but only a few cover the entire regulatory value chain. Demand, on the other hand, is geared towards integration: Institutes want to manage as many requirements as possible - from assessment to risk to compliance - from a single source or at least from a closely integrated platform.

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At the same time, barriers to entry are high. If you want to set up a RegTech or evaluation platform, you need not only technology and capital, but above all deep regulatory understanding, established methods and reliable relationships in an environment where trust and reputation are decisive. That is exactly why existing specialists should be brought together instead of starting from scratch.

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A typical buy-and-build plan starts with a core company that has a clear positioning, mature products, and a relevant customer base. Building on this, specific additions are being sought - such as providers with particular expertise in ESG, certain illiquid asset classes, specific national regimes or additional reporting modules.

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These acquisitions can be integrated into a common product and data architecture. At the same time, sales, marketing and implementation are being professionalized in order to place the growing range of services across the breadth of the market. Step by step, this creates a platform that enables customers to cover regulatory requirements in great depth and breadth via a consistent solution.

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Strategic Implications for Entrepreneurs

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For founders, shareholders and management teams in the RegTech and valuation environment, this analysis has several strategic consequences.

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On the one hand, the seller side should consistently formulate its equity story based on regulatory use cases. It is not enough to talk about “assessment” or “risk management” in general. It is crucial to clearly identify which specific regulations are addressed - such as how AIFMD compliance is supported in illiquid fund portfolios, how Solvency II valuations can be made more efficient, or how DORA requirements in terms of data quality and IT resilience can be met. The clearer this relationship, the easier it is for potential buyers to recognize the strategic value of a company.

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Secondly, it is worthwhile to think of evaluation and validation services as products. Recurring evaluation cycles, standardized reporting, modular service packages and clearly defined interfaces in customer systems are generally more scalable and suitable for M&A than purely project-based individual solutions. Companies that professionalize in this direction create a basis for platform models that can grow.

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Thirdly, entrepreneurs should actively shape their track record. Documented successes in regulatory-intensive environments, referenced customer projects, successful supervisory and audit tests, and verifiable model validations are key value drivers in today's environment. Anyone who systematically collects, processes and communicates these elements significantly improves their position in negotiations.

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This means thorough preparation for the due diligence process is crucial, particularly with regard to regulatory evidence.

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Investors' perspective: Regulation as an investment thesis

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Investors can use regulation as a clear investment thesis. Each new wave of regulations - whether related to market and credit risk, ESG, digital assets, or operational resilience - increases the need for specialized solutions. While expenses for institutions are increasing, the playing field is expanding for providers who translate these challenges into scalable, recurring revenue models.

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Attractive target companies are those that have already achieved a certain level of platform maturity: a robust product base, technology-based processes, deep-rooted customer relationships and recognizable unique selling points in a regulatory context. From there, further modules, regions or customer segments can be developed through targeted acquisitions.

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Anyone who enters such core platforms early on and follows a clear buy-and-build logic is positioning themselves in a market in which growth is driven by regulation rather than by economic cycles. If done well, this creates the basis for attractive return profiles.