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Insurance
December saw a continuation of the recent steady flow of announced UK Insurance M&A, with noteworthy deals across both distribution and risk businesses. The first week of the New Year has also seen a number of notable announcements of deals that will have been signed at the year end and so are included here.
Starting with insurance broking, activity was as ever dominated by the private equity backed consolidators. PIB Group announced its largest deal to date, acquiring specialist landlord insurance and tenant referencing business Barbon Insurance Group, a fellow Carlyle portfolio company. Global Risk Partners announced it has acquired Poole-based online commercial broker Insync Insurance Solutions, and Tasker Insurance Brokers acquired Numark Insurance Services, bringing it an affinity relationship with Numark network of independent pharmacies. A further three consolidator deals were announced in the first week of January, with Aston Lark acquiring superyacht specialist and Lloyd’s broker CRS Yachts, Phil Barton’s Partners& adding Focus Oxford Risk Management, and Specialist Risk Group announcing that it had acquired KBIS, the specialist equestrian insurance business.
One of the consolidators was itself acquired during the month, with Specialist Risk Group (SRG), the owner of Miles Smith that has been backed by Pollen Street Capital since late 2017, getting a new private backer. HGGC, the Palo Alto-based firm that also owns acquisitive insurance services business Davies Group, has replaced Pollen Street to support the next stage of SRG’s growth.
Finally, Geo Underwriting, the MGA arm of Ardonagh, announced its fourth deal of 2020 with the acquisition of Robus, an advisory firm specialising in insurance management, protected cells and captive management, with operations in Guernsey, Gibraltar and Malta.
In the sole broking deal that did not involve a PE-backed consolidator, Altrincham-based brokers Alan Stevenson Partnership and Seacombe Insurance Brokers announced that they were to merge, with a simultaneous minority investment in the combined business being made by Ataraxia and Minority Venture Partners (MVP), two investment vehicles backed by Peter Cullum.
Outside broking, there were two insurer deals involving legacy / run-off specialists, where 2020 has seen a high level of M&A activity. Randall & Quilter announced that it had acquired the Vibe Group companies Vibe Services Management Limited, Vibe Corporate Member Limited, and Vibe Syndicate Management Limited, thereby taking over responsibility for the run-off of syndicate 5678. Separately, RiverStone Europe, the European arm of Farifax Financial’s global run-off business RiverStone, was acquired by PE firm CVC Capital Partners (through its Strategic Opportunities Fund II) in a deal valued at $750m.
Lastly, just a few weeks after the listed price comparison business GoCompare was subject to a takeover offer from publishing group Future plc, motor insurer Admiral Group announced that, alongside its partner MAPFRE, it was divesting its price comparison division, which includes Confused.com, as well as its European comparison businesses Rastreator and LeLynx, to property website business Zoopla Property Group, the owner of uSwitch.
Investment
Mutual insurer LV= agreed to sell its savings, retirement and protection businesses to Bain Capital Credit for £530m in a process that attracted 12 bids from a mixture of private equity and trade buyers. The transaction marks the demutualisation of one of the UK’s largest mutuals under which its members will receive a cash payment to compensate for loss of membership.
Following last month’s news in relation to Parmenion and Nucleus, the investment platform market continued to attract attention with AnaCap signing a deal to acquire Novia Financial. This is the third investment by AnaCap in the wealth management platform space following recent acquisitions of Amber Financial Investments and Wealthtime.
Polar Capital, the specialist active asset management group, announced that it had reached an agreement to acquire Dalton Strategic Partnership, a boutique asset manager with over £1.2bn of assets under management, for £15.6m. Elsewhere in the asset management space, Aberdeen Standard Investments agreed to acquire 60% of Tritax Management, a property fund manager with £5.1bn of assets under management throughout the UK and Europe. Japanese financial services group ORIX Corporation bought a 70% stake in Gravis Capital Management, a specialist fund management firm.
The IFA sector saw further consolidation with Fairstone acquiring Bath and Bristol-based Sovereign Wealth Management and South Wales-based UskVale Financial Planning, with c. £120m of client assets. Fairstone also agreed to a downstream buyout of South Devon-based Sabre Financial and consolidator Independent Wealth Planners announced the acquisition of Donald Wealth Management, adding £135m of assets under management.
In the wealth management space, Schroders completed the previously announced acquisition of London-based family office, Sandair, and Brooks Macdonald finalised the purchase of Lloyds Bank International’s Channel Islands wealth management and funds business after receiving all the necessary regulatory permissions.
In the pension and investment consulting arena, Charterhouse Capital Partners agreed to acquire Inflexion’s minority stake in Lane Clark & Peacock along with the firm’s group of partners.
Lending
Whilst activity continued to be modest as the year concluded, there were nevertheless a number of M&A transactions in the banking sector. Arbuthnot Banking Group announced that its subsidiary Arbuthnot Latham had agreed the purchase of the entire issued share capital of Asset Alliance Group Holdings Limited from CS Capital Partners III (“Cabot Square”) for a consideration expected to be c. £4.1m. Shawbrook Bank announced it had completed the acquisition of RateSetter’s peer-to-peer funded development finance business, including the purchase of a development finance loan portfolio with facilities totalling £167m.
In addition, Metro Bank confirmed the sale of a portfolio of owner occupied residential mortgages to NatWest Group for a cash consideration of up to £3,128m, representing a 2.7% premium on gross book value. However, The Co-operative Bank announced that it had ended discussions after having attracted an approach from a financial sponsor with knowledge and experience of investing in European financial services businesses.
“We have great IT and systems”. This is something we hear a lot. Either when talking to clients about selling their businesses, or when acting in a buyside advisory role and helping a client appraise a possible target, everyone is keen to tell us about the fantastic technology that really differentiates their business.
Many financial services businesses have of course been completely transformed by changes in technology. What is more, it is frequently an area where nimbler, smaller businesses have an advantage over their larger, more established competitors. But they can’t all be right. Not everyone can have better technology than their competitors. By definition, half of all businesses out there must have worse-than-average technology.
So why do so many businesses think that their tech and systems are better than the next person’s? Well, in many cases it is because they don’t really know what the next person has or does. They know that their own technology has made them far more efficient than they were even a few years ago, but perhaps miss the fact that this is probably also true of most of the competition. They tend to overestimate their superiority, not fully realising that the baseline has moved – and keeps moving. Good and constantly improving systems are sometimes about just keeping up.
A common fallacy we often find when selling a business is around the seller’s perception of the attractiveness of their technology and the value that a buyer will ascribe to it. It may be valuable to them, but will a buyer see it that way? Typically, a larger acquirer will be looking to make cost savings after a deal by pushing its own tech and systems down into an acquiree. For this reason, they may be quite ambivalent about the target’s technology – it represents something they intend to get rid of.
There is a wider point here. Sellers often struggle to put themselves into the shoes of a buyer, to get outside their own business and look at it the way a buyer will. But doing so is critical to finding the right buyer and achieving the maximum value for a business. O wad some Pow’r the giftie gie us, To see oursels as ithers see us! An experienced adviser will help you understand how a buyer will think about your business. If you think your own business might benefit from an outside-in view, we’d love to hear from you.
Insurance
November marked the biggest and busiest month for UK Insurance M&A for some time, with over £10bn of announced transactions, including three high profile public takeovers and several major transactions involving both carriers and distribution businesses.
The most headline grabbing deal of the month was of course the recommended cash offer for perennial takeover target RSA Insurance Group, by a consortium led by Canada’s Intact Financial Corporation and including Scandinavian insurer Tryg A/S in a deal that will see the historic British insurer being split up.
The two other public deals in the month were the much-trailed takeover of The AA, the motoring association that is also one of the country’s largest personal lines insurer, by private equity firms Warburg Pincus and Towerbrook, and GoCo Group, owner of price comparison website GoCompare, by Future plc, the acquisitive FTSE 250 publishing group.
In a similarly high-profile broking transaction, the race to acquire leading wholesale broker Miller Insurance Services, part of Willis, was won by private equity firm Cinven and Singapore’s GIC. Cinven were again in the news later in the month with the announcement that alongside British Columbia Investment Management Corporation (BCI), they had agreed to acquire legacy acquirer Compre from existing owners CBPE Capital and Hudson Structured Management.
As ever, there were a number of smaller broking deals announced in the month. By far the most active of the consolidators was Aston Lark, who announced the acquisitions of two brokers from Risk Alliance Group (part of Accelerant), namely Risk Alliance Limited and Risk Alliance International Limited. A few days later Aston Lark announced that it had agreed to acquire MS Amlin’s personal leisure craft business, which it will relaunch next year under its historic Haven Knox-Johnston brand. Finally, the group announced that it was forming a joint venture with Jeremy Miles and Russell Kilpatrick to create Spring Partners, a new MGA platform that will get underway through its first acquisition, Neon Sapphire Underwriting.
In other broking deals, Howden Broking continued its recent spate of deals with the acquisition of cyber-focused Lloyd’s broker Safeonline Insurance Brokers, GRP-owned Marshall Woolridge acquired Rotherham-based RIB Group, Daulby Read Insurance Brokers acquired Townsends Insurance Brokers in Prestatyn, Brunel Insurance Brokers acquired Inman & Associates in Coventry, and Worcestershire-based Hazelton Mountford acquired Michael Rollett & Co. In a deal that had been expected for a while, PIB Group announced it had acquired rental property specialist and Carlyle stablemate Barbon Insurance. Finally, independent broker JM Glendinning Insurance Brokers announced that it had undergone a Management Buyout, led by CEO Nick Houghton and backed by Synova Capital, in a deal that sees the return to the market of Tim Johnson and Jeremy Cary of Stackhouse Poland fame, as Executive Chairman and Board Adviser, respectively.
Among carriers, there was continuing capital raising activity. Convex Group, the specialty insurance and reinsurance business founded by Stephen Catlin announced that it had raised a further $1bn of equity capital in a funding round led by existing investors Onex Corporation and GIC. Separately, new specialty insurer Inigo, led by Hiscox alumni Richard Watson, Stuart Bridges and Russell Merrett, announced that it had raised $800m from a group of investors including JC Flowers, CDPQ, Oak Hill Advisors and Qatar Investment Authority. Inigo will launch at Lloyd’s through managing agency Starstone Underwriting and Syndicate 1301, having acquired Starstone from Enstar, Stone Point and venture capital firm Dowling, who will remain investors in Inigo.
Investment
The investment platforms market is currently attracting interest. It was reported that Standard Life Aberdeen was exploring the sale of Parmenion to simplify its offering to financial advisers and that Sanlam had begun a process for a potential sale of its 52.2% stake in Nucleus. Just after the end of the month, Nucleus did indeed confirm in a stock exchange announcement that Transact’s parent company, Integrafin Holdings, and private equity firm Epiris, the investor in James Hay, were in talks over proposed cash offers for the platform business. Nucleus has also received proposals from private equity house Aquiline Capital Partners and fund distribution platform Allfunds.
Elsewhere, Stanhope Capital Group and FWM Holdings, which owns Forbes Family Trust, LGL Partners and Optima Fund Management, announced that they had merged to create a wealth management and advisory business, overseeing $24.2bn in client assets with 135 employees operating in six offices worldwide. WH Ireland agreed to acquire financial advisory and wealth management firm Harpsden Wealth Management for £7.8m and Multi-asset manager Alpha Beta Partners acquired discretionary fund manager MitonOptimal UK. Tatton Asset Management secured a £30m loan to fund its acquisitions plans in the DFM space.
In the financial advisory sector, Apiary Capital backed the buy-out of Radiant Financial Group, formerly known as CWB Group, an IFA, employee benefits and business consultancy services group. Fairstone, the national advice group, acquired Hampshire-based Cube Financial Planning through its downstream buy-out programme, adding £150m of asset under management and 153 clients. Sussex-based Pembroke Financial Services bought GMIFC and Independent Wealth Planners expanded in the Midlands with the takeover of Bishop Armstrong Financial Planning, its ninth acquisition this year.
In the investment technology arena, Souter Investments and Manfield Partners backed an MBO of LIKEZERO, a leading provider of next generation intelligent data capture technology for the financial services industry, from PwC, and Bravura Solutions acquired Delta Financial Systems, the software company that provides technology for pensions administration, including the SIPPs and SSASs markets.
Lending
There were a number of announcements in the UK banking market. J Sainsbury announced that it had received very preliminary expressions of interest in Sainsbury’s Bank while The Co-operative Bank announced that it had attracted an approach from a financial sponsor with knowledge and experience of investing in European financial services businesses. Separately, there was speculation surrounding interest in Starling Bank which announced it had reached profitability and was said to be embarking on a £200m fundraising.
Following an initial announcement regarding a possible offer in February 2020, Waterfall EIT UK (a newly formed company owned by funds managed by Waterfall Asset Management) announced a recommended cash offer for Alternative Credit Investments (formerly Pollen Street Secured Lending), valuing the entire issued and to be issued ordinary share capital at c. £639.2m.
Elsewhere, Mobeus Equity Partners announced that it had sold its interest in Advantedge Commercial Finance to eCapital Corp., a US SME commercial finance provider.
As the UK’s budget deficit continues to balloon and commentators pontificate on how the economic fallout from the current pandemic will ultimately be paid for, I expect that many of you have begun to hear rumblings that a change may be coming for the Capital Gains Tax regime, possibly as soon as March 2021. You may equally have wondered whether you might be able to sell your business before a new higher tax rate becomes effective.
It is indeed quite possible that the CGT rate will be changed next year. And it won’t be going down. But no one can say yet with any certainty what might happen. What is more certain is that, if you decide to initiate a sale process for your business today, then it is highly unlikely that you will complete it before the Spring. Of course, not every adviser will tell you that today; they might prefer to sign you up with the promise that they can effect a quick transaction, only informing you in a few months’ time that – so sorry – the timetable has slipped.
Sales processes and M&A involving regulated financial services businesses are complicated. Deals that go from start to finish in less than six months are the exception rather than the rule. An experienced adviser that really understands your business will know this. A good adviser should also have the courage to inform you about what is realistic, not just what is likely to win them the sale mandate.
If you would like to discuss your own M&A plans, do get in touch.
Insurance
October was another active month for UK Insurance M&A with 14 new transactions being announced among brokers, insurers and MGAs. Six of these deals involved a private equity-backed broking consolidator, again highlighting what a large proportion of current sector M&A activity is being driven by a relatively small number of buyers of (mainly) commercial lines broking business.
Dealing first with those consolidators, GRP’s new Midlands ‘hub’ business Birrell Group (which trades as Kingsway Insurance Services) announced two acquisitions, acquiring both Northamptonshire-based Managed Risk Solutions (MRSL) and Home Counties Insurance Services (HCIS) in Bedfordshire. In addition, GRP’s Yorkshire hub business Marshall Woolridge acquired Messrs R F Broadley, a long-established family owned broker in Masham. Fellow consolidator PIB Group announced two new deals in the month, acquiring real estate and PI specialist Arlington Insurance Services and Leicester-based Erskine Murray Insurance Brokers, the latter of which employs 90 staff and marks the group’s largest acquisition this year. Finally, Aston Lark announced it had acquired Birmingham-based broker Dunsby Associates in a deal that will help to build out the group’s presence in the Midlands.
Elsewhere in broking, A-Plan announced that it had acquired telematics business Ingenie from Watchstone Group and essential business services group Verastar acquired building insurance specialist LittleNLarge in a deal that will expand Verastar’s range of services for SMEs.
There were three deals announced among MGAs, including transactions for books of business. Pioneer Underwriting disclosed that it had signed terms to sell the business to Russell Coward, its head of Risk & Compliance, in a move that will see Pioneer CEO Andrew McMellin step down and the business rebranded. Manchester Underwriting announced that it had acquired the renewal rights of PI specialist Pinpoint Underwriting and would add Pinpoint’s team and Perth office to the group. Finally, Ardonagh-owned Geo Underwriting announced that it had completed the acquisition of the marine, leisure and marine trade book of business from KGM Underwriting Services.
Among insurers, Tesco Bank confirmed it had reached agreement with joint venture partner Ageas UK to buy Ageas’s 50.1% stake in Tesco Underwriting to give it full control over the business in a deal that was first flagged almost 12 months ago. Aegon announced it will divest the UK arm of its accident insurance business Stonebridge Insurance to Global Premium Holdings, part of the Embignell group of companies that also includes Union Income and Union Insurance. Lastly, the steady flow of legacy deals that has been a prominent feature of sector M&A this year continued with the announcement that ArgoGlobal had reached an agreement around an RITC transaction with legacy specialist RiverStone in respect of Lloyd’s Syndicate 1200.
Investment
Fidelity International bolstered its direct to consumer proposition by announcing two acquisitions: Legal & General Investment Management’s UK personal investing business and the low-cost platform Cavendish Online. The deals will bring more than 330,000 customers and £5.9bn of assets to the Fidelity platform.
In the asset management space, Momentum Global Investment Management (MGIM) agreed to acquire Seneca Investment Managers, creating a combined business with assets under management of £4.7bn and offices in London and Liverpool. Liontrust completed the previously announced £75m acquisition of the Architas UK Investment Business from AXA.
In the wealth management area, LGT Group, which is controlled by the Liechtenstein royal family, took full control of wealth manager LGT Vestra after having acquired the remaining equity from the firm’s executive partners. Prydis bought Edinburgh-based Virtuo Wealth Management, a financial advisory business that focuses on ethical and sustainable investments. Walker Crips purchased the client book and assets of Yorkshire high net worth financial adviser MA Heap.
In the IFA sector, Chase de Vere acquired Nestor Financial Group, a specialist IFA practice working with personal injury and clinical solicitors and their clients. Fairstone, the national advice group, completed the acquisition of Andrew Cohen Associates through its downstream buy-out programme, adding £150m of asset under management and 850 clients. Lucas Fettes Financial Planning acquired the business of Andrew Dickson and Colchester-based Fiducia Wealth Management was subject to a management buyout.
Elsewhere, The Carlyle Group has agreed to acquire a majority stake in the global funds network Calastone from its current shareholders, including Octopus Ventures and Accel.
Lending
Equity capital raising transactions were flavour of the month as M&A activity continued to be relatively subdued in the lending markets.
City of London Group announced the completion of a c. £26.7m equity capital raise while its subsidiary Recognise Financial Services progressed its application for a banking licence. Augmentum Fintech announced the successful completion of its equity capital raise of c. £28.0m, through a placing and retail offer, to fund its pipeline of investment opportunities. Molo, the digital mortgage lender, announced that it had raised a further £266m in debt and equity funding, completing its series A equity funding round. The investment was led by Macquarie Group and Patron Capital, with the equity round led by Yabeo and supported by existing shareholders including Andenes Investments and GPS Ventures.
Elsewhere, Pollen Street Secured Lending announced that the Panel on Takeovers & Mergers had once again consented to an extension of the relevant deadline until 3 November 2020 for funds advised by Waterfall Asset Management to conclude on a possible cash offer for the company.
With data for two full quarters since Covid-19 upended so many plans in March, we thought it would be a good time to look at our M&A statistics, to understand how far Financial Services deal volumes might be recovering as lockdown has been (partially and perhaps only temporarily…) relaxed.
The short answer is that deal volumes in the third quarter of this year were marginally higher than the previous quarter, but still substantially lower than in the corresponding period in 2019. There were 16 UK Financial Services M&A transactions estimated to be valued at more than £5m during the quarter, up from the 14 in Q2 – a period in which the UK was in full lockdown and, so one might hope, the nadir for deal activity. That is less than half the number of deals (39) we saw in Q3 2019, albeit that quarter marked a multi-year high, well above the quarterly average number of deals of 27 since 2017.
In terms of where deals are happening, the Insurance sector has continued to dominate M&A, followed by Investment. This is perhaps not surprising. Notwithstanding the damage that has been done to many insurers’ reputations as a result of the pandemic, the sector has proven very earnings resilient and the drivers supporting much of the recent deal activity, not least the appetite of private equity investors, remains intact. Similarly, the wealth management sector has shown strong performance throughout the pandemic despite adverse stock market developments and a slowdown in new business activity.
However, M&A activity in the Lending sector has been muted, with fewer than a dozen transactions in the year to date. Again this is no surprise – it is arguably within this subsector that the level of uncertainty created by the pandemic has been greatest, making M&A more difficult.
Deals are still being done and generally on terms not dissimilar to those seen before the pandemic. The quarter saw a number of high-profile transactions being announced, in both the public and private markets. We have seen very few distressed deals. It will take time for animal spirits to fully return, but buyer appetite remains robust and deal volumes are likely to continue to edge up.
If you’d like to discuss how current M&A trends might be relevant to your own business then we’d love to hear from you. We are always happy to meet up, either in person or via ‘Zoom’ etc.
Insurance
September looked like being a relatively quiet month for Insurance M&A until the last week of the month, when a number of notable new transactions were announced.
Grabbing most of the headlines was Hyperion Insurance Group and its subsidiary Howden, with the announcement that it had acquired Hg Capital-backed A-Plan Group in a transformational deal for Howden’s retail arm, creating a £4bn GWP broker. A few days later Howden announced that it had also acquired specialist PI broker St Giles Legal & Professional Risks, cementing its leading position in that market segment. Finally, Hyperion revealed that it had sold a stake to Hg in a c.$1bn deal valuing the group at nearly $5bn and providing further funding to support its growth.
Elsewhere in commercial broking, ECI Partners-backed Clear Group announced that it had acquired Brokerbility Holdings, the Leicester-headquartered group comprising inter alia BHIB Insurance Brokers, Churchill Insurance Consultants and the Brokerbility Network, of which Clear is a longstanding member, Aston Lark acquired its second Lloyd’s broker in as many months by purchasing specialist PI broker Brunel Professions, US Broker NFP acquired Birmingham-based Ernest R Shaw, and AssuredPartners’ UK arm announced the acquisition of Chester-based medical malpractice specialist Red Insure, along with commonly-owned underwriting agent Everest Risk Management.
In personal lines, Ardonagh announced it had acquired specialist motor broker Lloyd Latchford, troubled over 50s travel and insurance specialist Saga launched a £150m capital raise led by former owner Sir Roger De Haan, and listed roadside assistance provider the AA (which also happens to be one of the UK’s largest personal lines brokers) announced that it was in continuing discussions with private equity firms Warburg Pincus and Towerbrook Capital Partners about a potential takeover of the group.
Among insurers, Beat Capital announced it would partner with private equity firm Bain Capital to support Beat Capital’s underwriting businesses through Lloyd’s Syndicate 4242 and American Financial Group (AFG) announced that it had completed its previously flagged exit from the Lloyd’s market with the sale of its insurer Neon to run-off specialist RiverStone.
Finally, in Insurtech, acquisitive professional services and technology firm the Davies Group announced that it had acquired ContactPartners, a business specialising in building customer contact solutions for financial services businesses.
Investment
It was reported that Royal London is pursuing a potential £500m takeover of LV= in a deal that would create a pensions, life insurance and asset management group with £139bn of assets under management and over 10m customers. It was also suggested that Bain Capital, the private equity investment firm and backer of motor insurer esure, is also keen on acquiring LV=. Subsequently, LV= confirmed that it is indeed in exclusive discussions with Bain Capital about a potential transaction, dismissing reports that talks with Royal London were still happening.
In the wealth management area, Schroders announced that it had reached an agreement to acquire Sandaire, the London-based family office with c. £2.2bn of client assets, and 7IM, which is backed by Caledonia Private Capital, completed the acquisition of London-based advice firm Partners Wealth Management in a deal that will boost 7IM’s client assets by over £2bn. Gale and Phillipson completed the acquisition of Gyr Financial Consulting, adding about £200m of funds under management.
There were continued high levels of activity in the IFA sector with The Socium Group, a private equity backed national group which launched last year, buying Beaufort Group, a financial services firm operating both an adviser network and a discretionary fund management arm with c. £1.1bn of assets under management. Adviser Services Holdings, a newly established IFA network, announced it had agreed to buy the Sense Network for £9.35m as part of its plans to build a 500-strong adviser network following its acquisition of Lyncombe Consultants, an IFA network with 30 advisers, earlier this year. Independent Wealth Planners acquired Hove-based Hunter Hammond Daniel Associates, adding around £200m in assets under advice, Solihull-based Beyond Financial with £58m of assets under advice and Kilmarnock-based Gilmour Hamilton Wealth Management. Kingswood Holdings agreed to acquire Surrey-based Regency Investment Services for £3.45m, adding £320m assets under advice and around 1,000 clients. Perspective Financial Group acquired Wiltshire-based Jones Hill, bringing £44m of funds under advice to the group and Fairstone signed up Hereford-based Complete Financial Planning, which has over £140m of client assets, to its downstream buy-out programme.
It was also rumoured that Harwood Wealth Management is in advanced discussions to buy Gallagher’s UK planning business in a deal which could see around 25 advisers join Harwood Wealth Management.
Elsewhere, asset manager Victory Capital Holdings acquired a 15% stake in London-based investment firm Alderwood Partners, the operating entity of Alderwood Partners, an investment advisory firm focused on taking minority stakes in specialist boutique asset management businesses.
Lending
The UK SME banking market saw a number of transactions: Allica Bank announced a follow-on investment of £26m by existing majority shareholder, Warwick Capital Partners, while launching a £100m funding round to accelerate its lending; and City of London Group announced a conditional capital raise of up to £30m while its subsidiary Recognise Financial Services progresses its application for a banking licence. The capital raise comprises a £25m subscription by Parasol V27 and a £5m placing to existing shareholders and potential new investors.
Pollen Street Secured Lending (PSSL) announced that the Panel on Takeovers & Mergers had once again consented to an extension of the relevant deadline until 6 October 2020 for funds advised by Waterfall Asset Management to conclude on a possible cash offer for the company. However, Honeycomb Investment Trust, which had previously announced that it had made a competing proposal to PSSL, announced that it did not intend to make an offer.
Elsewhere, fintech lender Capify closed a £8m equity funding round; Metro Bank announced the completion of its acquisition of Retail Money Market (trading as RateSetter); and Arrow Global Group announced that it had held a third close of its inaugural closed-end fund Arrow Credit Opportunities, raising an additional €0.3bn of capital commitments, bringing total capital commitments to €1.5bn.
“Due diligence won’t be hard, we are a simple business with great information”. How often do we hear this from sellers? More often than I would care to remember. How often does it turn out to be correct? Almost never.
At the start of any sale process, we warn our clients that due diligence will be a demanding process; a slog and a strain and often deeply frustrating. They nod and smile politely, but they don’t really believe us. Only at the end of a process do they realise how far they had underestimated the scale of the challenge and the time it will take, as we resist the temptation to say “I told you so”.
It is understandable why many sellers can be blasé at the outset of a diligence process. They have great businesses, good systems and detailed information. But that information is usually what is right for them, as owners and managers of the business. It is not everything that a buyer – and its financiers – need to see in order to sign off a deal to buy the company.
Modern, institutional-level due diligence in Financial Services is unbelievably demanding. Many private sellers who have not been through it before fail to anticipate just how much information a buyer will want to see and the sorts of questions they will ask.
Some due diligence is about fully understanding the target business and its fit with the acquirer, but most due diligence is a risk management exercise. It is a drains-up investigation of nearly every aspect of a business and its past. It is far more thorough than any financial audit.
It is also something that many buyers will heavily outsource – not just to lawyers and accountants, but increasingly to dedicated specialists covering areas such as IT, Compliance and HR. These third-party providers produce reports for the buyer that they are asked to stand behind and, therefore, have an interest in being rigorous.
So what can a seller do to make life easier? Commissioning a Vendor Due Diligence exercise is one option, but this can be expensive and will not suit every business. Preparation and adequate resourcing is another, of course, but in our experience it is almost impossible to fully ready a business for the process in advance. The best advice is often just to accept it. Don’t take it personally. Think of it as something difficult but necessary, that hopefully only has to be done once.
It also helps to have an experienced adviser on your side, to guide you through and coordinate the process, taking on the heavy lifting to allow management to remain focused on actually running the business. If you’d like to discuss your own plans, do get in touch.
Insurance
In last month’s newsletter we commented that August can often be a quiet month for M&A, as people disappear for the summer. Well, that was clearly utter rubbish, as this August has seen a slew of announced Insurance deals, mainly on the distribution side but also involving risk carriers.
In broking, there were ten announced deals in the month and with only one exception, the buyers were all what one might regard as the “usual suspects”, which is to say the private equity-backed consolidators that have come to dominate these newsletters.
Aston Lark announced two new deals during the month, acquiring both specialist employee benefits business Private Healthcare Managers, or PHM, and Lloyd’s broker Incepta Risk Management, furthering the group’s existing footprint within the London Market.
Also announcing two new deals was Ethos Broking, which announced the acquisition of Broker Network member Guy Penn & Co. in the North West and, via hub broker Bennett Christmas, Sennet Insurance Services, a commercial broker in Kent.
Global Risk Partners managed to go one better, with three new deals. Two of these were via hub business County Group, which announced the acquisitions of Britannia Consultants Services in Cheshire and CJN Insurance services in Worcestershire, and the third directly by acquiring the renewal rights on seven books of business from Aon UK.
Not to be outdone, PIB Group announced the acquisition of transport specialist Rigton Insurance Services in Leeds and the increasingly prolific Bollington Wilson acquired Watson Laurie, a chartered broker based in the North West.
The one broking deal not involving a PE-based consolidator was Costero Brokers’ acquisition of fellow Lloyd’s broker Prospect Insurance Brokers. Costero is part of the Heffernan Insurance Brokers, a Californian employee owned business, demonstrating that UK broking M&A is not quite yet the sole preserve of the handful of serial acquirers discussed above.
There was one MGA transaction, with Ardonagh announcing the acquisition of construction specialist Thames Underwriting.
Among insurers, we noted last month that Finnish group Sampo was leading a pursuit of listed motor insurer Hastings Group. In early August Hastings, announced that its board had recommended a cash offer for the business that valued the group at £1.66bn. There were also two deals for insurers in run-off during the month. Randall & Quilter announced that it had agreed a deal to acquire Inceptum Insurance Company from the Vibe Group of companies and Allianz announced that it had divested the British Reserve Insurance Company to newly formed Marco Capital Holdings, a Malta-headquartered run-off specialist backed by, among others, Oaktree.
Investment
Inter-dealer broker TP ICAP announced the acquisition of Louis Capital Markets and MidCap Partners (collectively known as “Louis Capital”), a private brokerage group specialising in equities and fixed income, primarily based in Europe, for an initial consideration of $21m in cash and a deferred non-contingent consideration of $6m, as well as a further $17m deferred contingent consideration.
In the pension administration area, STM Group acquired Berkeley Burke (Financial Services) and Berkeley Burke Employee Benefit Consultants from Berkeley Burke Group, which together provide administration and consultancy services to Small Self-administered Pension schemes in the UK and to large and medium sized UK and international businesses, for a maximum consideration of £2.9m, comprising of £1.4m initial consideration and a further £1.5m of contingent deferred consideration.
In wealth management, Fairstone finalised the acquisition of Berkshire-based Chiltern House after they completed a two-year integration, adding 500 clients, £2.6m in gross fee income and £400m AUM to Fairstone. Seven Bridges acquired Gateshead-based pensions and investment firm Pension Matters, bringing 600 new clients to the group and adding £110m of AUM. Wren Sterling completed the acquisition of Woking-based Frobisher Capital, which has some £68m of AUA. AFH Financial acquired the client book from the insolvent Welsh business Juno Moneta Capital, after the latter went into administration.
In asset management, M&G Investment Management raised their cash offer by 4.5% to £191m for UK Mortgages, the debt-focused investment trust, but it was dismissed by UK Mortgages which said it can do more for shareholders in a strategic review of the business.
Timelineapp, the next-generation retirement income software, secured £1.8m in funding from FNZ, becoming a non-controlling minority investor, along with Capital Asset Management’s CEO Alan Smith, Open Money’s CEO Anthony Morrow and Andrew Hart, as well as existing investors Jason Butler, Adam Seale and Tim Wright.
Payments & Lending
In payments, cloud-native payments technology platform Form3 raised $33m in a strategic investment round with new investors Lloyds Banking Group, Nationwide Building Society and venture capital firm 83North following its announcement of a strategic partnership with Lloyds Banking Group in July 2020. CloudPay, the UK-based global payroll provider, raised $35m in growth capital with new investor Runway Growth Capital joining existing investors Rho Ventures and Pinnacle Investment Partners, real-time cross-border payments firm Vitesse raised £6.6m in Series A funding led by Octopus Ventures, with participation from existing shareholders including Hoxton Ventures and other angel investors and open banking-focussed fintech sync. reported a £5.5m seed and pre-seed round, which was actually completed earlier on in 2020, and will be used to grow the fintech’s employee numbers as well as bolster its beta launch across the European Economic Area.
Wirecard Card Solutions (WCS) Ltd, a wholly owned subsidiary of Wirecard Acquiring & Issuing GmbH and part of the insolvent Wirecard AG group, agreed a term sheet to sell its card technology and associated assets in the UK and to effect the transfer of client relationships and certain employees to the Banking-as-a-Service platform Railsbank, as part of WCS’s plans for reaching a solvent wind-down of the business. Wirecard AG will continue to hold ownership of Wirecard Card Solution’s shares.
Elsewhere Solidatus, the provider of innovative metadata management software, received a strategic investment from Citi, which is also implementing the Solidatus platform internally, at a global enterprise level and Cornerstone Brands announced the acquisition of payments processor FXPress whilst also selling its existing Cornerstone business and restructuring capital. The new corporate business will offer international payment services for small- to medium-sized businesses.
Pollen Street Secured Lending (PSSL) announced that the Panel on Takeovers & Mergers had once again consented to an extension of the relevant deadline until 8 September 2020 for funds advised by Waterfall Asset Management to conclude on a possible cash offer for the company. However, Honeycomb Investment Trust subsequently announced that it had made a competing proposal to PSSL regarding a possible merger on a NAV for NAV basis which would result in PSSL shareholders holding c. 65.3% of the enlarged group. The Board of PSSL announced that it did not believe the possible Honeycomb offer compared favourably in value or liquidity terms.
Following last month’s announcement by the boards of HWSI Realisation Fund and Cubitt Trade Holdings of a recommended cash offer valuing HWSI at c. £79.6m, the requisite shareholder resolutions were duly passed with the transaction expected to complete in September. Tandem Bank acquired green lending business Allium Lending Group as part of a £60m fundraising deal announced in March 2020, led by the Qatar Investment Authority, although at that stage the name of the planned acquisition was not given.
Elsewhere, Habito confirmed that it had closed a £35m investment as part of its Series C fundraise. The overall investment round, which included a Series C extension in the form of a convertible loan note, was led by Augmentum Fintech, SBI Group and Mojo Capital with support from existing investors Ribbit Capital, Atomico and Mosaic Ventures.
The summer months invariably see a bit of a slowdown in announced M&A activity, although it is actually not unusual to see a mini spike in transactions in July, as buyers, sellers and their advisers rush to finalise deals before the August exodus. Such a mini spike was not really observable last month, but of course this is not a “normal” year and many planned transactions will be suffering from delays and elongating timetables.
Intuitively, one might think that the summer is not a good time to do a deal, given the need to manage people’s holidays and the obvious logistical difficulties involved in getting the various decision makers and their advisers together at the same time. We would observe that while it is not a great time to launch a new process and market a business for sale, for deals that have already got a head of steam by around June, the quieter summer months can actually be a good time to get through due diligence and finalise a deal (indeed IMAS is currently advising on a number of transactions that are expected to conclude this month). Equally for new deals being readied, the summer months can provide a useful period for planning and preparation.
In this most unusual of years, the summer is giving many business owners a chance to reflect on their plans and prospects. The longer-term impact and implications of Covid-19, while still uncertain, are becoming clearer than they were just a few months ago. Business risks are being re-evaluated. as companies and their owners reassess their priorities. We would expect new decisions around M&A to be made and plans hatched among both buyers and sellers.
We hope you are managing to get a break this summer and enjoying the weather. Should your thoughts turn to M&A and you wish to discuss ideas for your own business, we’d love to hear from you.
Insurance
There were a number of notable deals in the Insurance sector, with both distribution-led businesses and selected risk carriers involved in M&A.
Among the private equity backed broking consolidators, PIB Group announced the acquisition of Stockton-based Internet Insurance Services UK, trading under the slightly snappier name of UKInsuranceNet, Livingbridge-backed Jensten Group announced its second deal of the summer with the acquisition of PI specialist HTC Associates, and Aston Lark continued its drive to build out the employee benefits side of its business with a deal to acquire Hampshire-based specialist Private Healthcare Managers (PHM).
In other broking deals, S&G Risk Solutions (a new vehicle led by former Property Insurance Initiatives CEO Brett Sainty) announced the acquisition of Lloyd’s broker BLW Insurance Brokers and personal lines broker Brolly was picked up by Direct Line Group. App-based digital broker Brolly is a relatively young startup business and is one of an increasing number of early-stage insurtech businesses to be acquired by large incumbents choosing to selectively buy the sort of innovation that they can often struggle to foster internally.
Finally, listed motor insurer Hastings Group announced that it was in discussions about a possible cash offer from Sampo, the Finnish insurance group, working alongside Rand Merchant Investment Holdings (RMI), an existing major shareholder in the business. With the FTSE 350 (and Sterling) still down heavily for the year, it is perhaps not a surprise to see that overseas buyers and institutional investors are looking at public to private opportunities in the UK market.
Investment
Curtis Banks, the pension administration provider, announced two acquisitions: First, of the SIPP and SSAS provider Talbot and Muir for up to £25.3m; and second, the fintech firm providing software for retirement modelling and policy administration, Dunstan Thomas, for £27.5m.
There was consolidation in the investment trust sector with Perpetual Income & Growth, the £466m UK equity income trust, agreeing to merge with its £509m peer Aberdeen Standard’s Murray Income Trust. M&G Investment Management revealed last week it had made several approaches to the board of UK Mortgages, a debt-focused investment trust, with a view to take over the company, all of which have been rejected.
Shares in Hadrian’s Wall rocketed nearly 90% after the listed debt fund, which is winding down after suffering loan losses, accepted a cash offer from a US-based Petra Group’s subsidiary, Cubit Trade Holdings, for the entire portfolio for £79.6m.
In the adviser investment platform market, Fundment secured a £3.4m funding from investment company ETFS Capital to help expand its UK operations and there was speculation in the press that private equity firm AnaCap Financial Partners is eyeing up another platform acquisition as discussions circle around Tatton Asset Management-linked Amber.
Elsewhere in the wealth management area, Frenkel Topping raised £13m for acquisitions after having announced the acquisition of accountancy firm Forth Associates, with offices in Manchester and Leeds. Synova-backed Fairstone announced it had bought a stake in Surrey-based Mantle Financial Planning as part of its Downstream Buy-Out programme, adding gross fee income of £3.3m and over £480m AUM. Oxfordshire-based CMS Financial Management acquired Buckinghamshire-based advice firm Asset Wise Associates which has c. £120m of client assets and Sussex-based IEP Financial completed the acquisition of RT Williams’s investment, pension and life insurance businesses with £50m in client assets.
On the capital raising front, money management app Plum raised $10m led by Japan’s Global Brain and the EBRD with participation from VentureFriends as well as match funding of $2.5m from the UK government’s Future Fund scheme. Moneybox, the investment app provider, raised £30m in a Series C venture funding from Eight Roads and CNP and joined by Breega achieved double its Series B valuation in 2018 – Moneybox also tapped crowdfunding platform Crowdcube to raise £4m in just four hours.
Payments & Lending
The payments technology sector attracted headlines in July as international payments firm TransferWise completed a $319m secondary share sale, valuing the business at c. $5bn, led by existing investor Pine Capital and new investor D1 Capital Partners with current investors Baillie Gifford, Fidelity Investments and LocalGlobe expanding their holdings in the firm, while Vulcan Capital also participated. Revolut, the banking services platform, secured a £63m investment from US-based private equity firm TSG Consumer Partners at the $5.5bn valuation announced in February’s funding round. Lloyds Bank acquired a minority equity stake in Form3, the payments-as-a-service provider for banks and regulated FinTech companies, to help overhaul its legacy payments architecture to the cloud.
In lending technology, UK-based digital lender Selina Finance raised £42m in Series A funding with £12m in equity financing from Picus Capital and Global Founders Capital and £30m in debt financing. Core banking technology firm Thought Machine secured an additional $42m from Eurazeo, SEB and British Patient Capital to reach a total of $125m in Series B funding. Wagestream, the flexible wage app business, closed a £20m Series B funding round led by Northzone and joined by QED Investors, Latitude Ventures and Balderton Capital taking its total funding to £65m. Milaya Capital invested £15m in Lanistar the personal financial management start-up leveraging polymorphic technology in exchange for a 10% stake and alternative investment manager Intriva Capital acquired Lending Works the P2P lending platform where they will commit significant additional capital to support the growth of the business.
Elsewhere, big data and enterprise intelligence business Quantexa, raised $64.7m in a Series C funding round led by Evolution Equity Partners, the cyber security venture capital investors, with return backers Dawn Capital, AlbionVC, HSBC and Accenture also participating alongside new investors British Patient Capital and ABN AMRO Ventures. ComplyAdvantage raised $50m led by Ontario Teachers’ Pension Plan Board and joined by existing investors Index Ventures and Balderton Capital, Ravelin the payment security business raised £16.4m in a Series C round led by Draper Esprit to expand its operations overseas and industry coverage and Standard Chartered acquired a minority stake in blockchain-based post-trade processing network Cobalt.
As the broader lending M&A markets continued to be subdued, the peer-to-peer market saw a number of transactions. In the consumer credit segment, Metro Bank announced that it had conditionally agreed to acquire Retail Money Market trading as RateSetter for an initial consideration of £2.5m with additional contingent consideration of up to £9.5m payable within 3 years; and Lending Works announced that Intriva Capital will conditionally acquire 100% of the equity in the business with a further commitment to provide additional funding and capital to support future growth.
Following Hadrian’s Wall Secured Investments’ announcement earlier in the year that it had concluded its review of strategic options and had determined that the company should be put into managed wind-down, the boards of HWSI Realisation Fund and Cubitt Trade Holdings announced the terms of a recommended cash offer valuing the company at c. £79.6m. However, Pollen Street Secured Lending announced once again that the Panel on Takeovers & Mergers had again consented to an extension of the relevant deadline until 11 August 2020 for funds advised by Waterfall Asset Management to conclude on a possible cash offer for the company.
Elsewhere, Fair for You, the non-profit responsible credit provider, secured a £7.5m investment from some of the country’s biggest social investors and foundations. The £7.5m investment includes £5m in dormant assets funding from the Government-backed Fair4All Finance.
Half empty? Half full?
The impact of Covid-19 on UK Financial Services M&A is revealed with the publication of IMAS Q2 data.
Source: IMASinsight
The second quarter of this year saw the volume of M&A activity drop by 40% on the corresponding period in 2019, a level of decline not seen since IMAS started collecting detailed transaction information in 2011. Indeed, the Insurance sector has seen a drop of almost 70% (see below for individual sector analysis). The pessimist would say it would have been worse and that some of the deals done in 2020 might only have been conditional on FCA approval when the extent of Covid-19 became apparent and so could not have been pulled even if the buyer had wanted to. However, the fall in activity is symptomatic of a more consistent decline in volumes since the peak in Q3 last year.
Also, given the unprecedented restrictions in place, the volatility in global stock markets and the sheer level of uncertainty the economy still faces, the fact that any deals were done at all was a minor miracle.
That is certainly our experience here at IMAS where we advised on two transactions that were announced last week alone, as well as having taken on new business throughout the lockdown. Transactions are still happening, new sale processes are being initiated, and extensive home working is not proving as great an impediment to M&A as one might have expected before so many of us adopted it.
A key driver of M&A activity in recent years has been Private Equity firms. Their fund cycle and investment mandates with institutions last for years not months; that determines their decision making processes. They have raised billions in committed capital and they need to find places to make it work. So yes, they are closely reviewing each of their portfolio companies and often directing them to conserve cash, yes debt has become more expensive and difficult to secure, but capital is still available and needs to be deployed. Many vendors of companies are gaining a new understanding of the benefits of derisking, moderating their expectations on value and accepting greater risk sharing in transaction structures. Private equity firms with cash to invest will get no credit for burying their talents in the ground.
So do stay in touch with us. The appetite among the private equity funds and trade acquirers remain strong.
Insurance
After what was an eerily quiet May for deals, insurance M&A volumes notably picked up in June, with a number of broking and MGA deals being announced. Although the number of transactions remains some way below the long-term monthly average, deals are still being done and there are tentative signs of a return to some semblance of “normality”.
In commercial broking, Durham-based Castle Insurance Services announced it had acquired EW Knapton, Ethos-owned Bennett Christmas acquired energy broker Offshore & Marine Insurance Services (OMIS) and Thompson & Richardson (also an Ethos partner broker) acquired Scunthorpe-based Johnstone Insurance Brokers. As we have remarked before in this newsletter, the Ethos hub-and-spoke based approach has proved very effective in allowing the group to facilitate a large number of small acquisitions and we would anticipate continuing to report on one or other Ethos backed broker making a new acquisition in most of our monthly M&A newsletters for the foreseeable future.
Ethos was itself the subject of a headline-grabbing transaction during the month, with the (frankly unsurprising) news that Bravo Group – the owner of Broker Network, Ethos and Compass – was to be acquired by Ardonagh. Ardonagh simultaneously announced it had undertaken a refinancing of its debt and acquired Irish broker Arachas. As Ardonagh, Arachas and Bravo were already under common ownership by US private equity investors this transaction was largely constituted a reorganisation rather than “new” M&A activity.
In other deals, personal lines MGA UK General was reacquired by its former owner Primary Group following a three-year period of ownership by private equity investor JC Flowers & Co. JC Flowers will probably not count it as one of their more successful investments. Miles Smith owner Specialist Risk Group continued its recent run of deals by acquiring insolvency specialist AUA Insolvency Risk Services from insurer MS Amlin and Livingbridge-backed Jensten Group (née Coversure) acquired Lloyd’s broker Senior Wright.
Investment
In the asset management sector, Liontrust agreed a £75m deal to acquire the UK investment business of Architas, part of the AXA Group, including the multi-manager and advisory arms, adding £5.6bn worth of AUM and raising its total AUM to £25bn. Pacific Asset Management (PAM) acquired Parallel Investment Management, the discretionary fund management arm of the chartered financial planning firm, Fidelius Group, in exchange for PAM’s financial planning subsidiaries via a share swap, leading to a minority shareholding in each other’s businesses.
UK investment groups were also active offshore: Brooks Macdonald announced that it had entered into an agreement to acquire the Channel Islands wealth management and funds business of Lloyds Bank International for total consideration of up to £9.63m, including £2.5m of regulatory capital, with initial consideration being up to £9.30m; Schroders announced that it had reached an agreement to acquire a majority stake in Pamfleet, a value-add real estate investment manager with offices in Hong Kong, Shanghai and Singapore, with US$1.1bn of AUM across four funds; and WH Ireland confirmed it had executed a conditional agreement with Ravenscroft Holdings Limited to dispose of its Isle of Man subsidiary, WH Ireland (IOM) Limited with c. £350m AUM for a consideration of a maximum of £0.66m plus £1.14m of loan repayments.
In the IFA sector, Kingswood Wealth announced it had completed the acquisition of Sterling Trust Financial Consulting, a Yorkshire-based IFA group, for a total of £19.5m of which £7.25m was paid on completion. Independent Wealth Planners UK (IWP) acquired Greater London-based Clairville York Financial Advisers, bringing £374m of assets under advice to the business. It also purchased Stevenage-based financial planning firm Richmond House Wealth Management, with £250m in client assets and eight advisers as well as Westinsure Webb Financial Services, which will bring a total of £70m in AUM and two advisers. Chase de Vere announced the acquisition of Scottish firm Ferguson Oliver for a total consideration of £3.85m, increasing the group’s assets under advice by £180m. Truinvest bought Bromwich Financial Planning in a deal which followed the consolidator’s first acquisition of Group Rapport in March. Fairstone begun the acquisition of MT Financial Management, and Wealth Matters completed the purchase of the pension and investment clients of Poptani Financial Solutions. Ascot Lloyd announced that it had acquired six adviser firms during the first half of this year which have collectively added £1.2bn in AUM and £8m in annual revenue from over 2,300 clients, including Kemble Warwick, Corporate Benefits Consulting, Gregory Adam Financial Management, Fitzroy Wealth Management and Ring Associates.
Elsewhere, Aviva took full control of Wealthify, the online wealth manager, after the founders exercised their options to sell. Brown Shipley & Co, the private bank, sold its employee benefits business to Beckett Investment Management Group in East Anglia. Square Mile Investment Consulting and Research acquired Ethical Money and its trading entity 3D Investing, a research house that assesses the underlying holdings of impact funds based on whether they can make a “positive or measurable” environmental or social change. Premier Choice Healthcare, the specialist health insurance and protection broker, was acquired by GRP, the retail broking, specialist MGA and Lloyd’s business.
Finally, UK-based insurance provider LV= announced that it is considering selling its life and pension business following media speculation about the firm engaging advisers to put the remaining parts of the business up for sale.
Payments & Lending
In payments, e-commerce payments processor Checkout.com raised $150m in Series B funding, tripling its valuation to $5.5bn following a shift to online shopping during the global pandemic, led by Coatue, along with participation from existing investors, including Insight Partners, DST Global, Blossom Capital and GIC. Checkout.com also recently acquired payment processing platform Pin Payments. International remittance platform TransferGo raised $10m in funding led by Seventure as well as Vostok Emerging Finance and payments platform Apexx Global raised $8m in Series A funding with contributions from new and existing investors including Forward Partners, MMC and Alliance Ventures.
Singapore Exchange, acquired the remaining 80% stake in cloud-based FX trading platform BidFX from other shareholders for c. $128m in cash to expand SGX’s reach in the global FX over-the-counter (OTC) market, H4, the capital markets-based digital document analysis platform secured $27m in funding from a consortium including JP Morgan, Goldman Sachs as well as Barclays and Citi’s proxy voting platform Proximity raised $20.5m in a strategic investment round from a number of banks including BNY Mellon, Citi, Clearstream, Computershare, Deutsche Bank, HSBC, J.P. Morgan, and State Street. CubeLogic, the enterprise risk management solutions provider for the energy, commodities and financial markets, sold a significant minority stake to Growth Capital Partners, Codat, the real time business data technology company connecting small businesses to banks, fintechs and other financial institutions, raised $10m in venture funding from Index Ventures and TAINA, the financial institutions regulatory compliance specialist including banks, online trading platforms and fund administrators closed A Series A funding round including Anthemis, Tribeca ESP, Reciprocal Ventures and SIX Ventures.
Against the backdrop of a challenging market environment Monzo confirmed that it had closed a £60m fund raising at an implied pre-money valuation of c. £1.25bn, a significant decline from the reported c. £2bn valuation following the previous year’s £113m Series F raise. The fund raising was backed by new investors Reference Capital and Vanderbilt University alongside existing investors Y Combinator, General Catalyst, Accel, Stripe, Goodwater, Orange, Thrive and Passion Capital.
Amigo Holdings announced that it had concluded its formal sales process following the withdrawal of a potential acquirer given the current market environment. Separately, Amigo’s majority shareholder Richmond Group announced that it had placed all of its shares in Amigo with a broker, with irrevocable instructions to sell 1% of the company every trading day until Richmond’s stake was reduced to zero, in the event that the current board remained in place following the general meeting to consider Richmond Group’s resolutions to remove the Amigo Board. Following defeat of those resolutions, Richmond Group has begun its sell-down.
Having initially announced discussions in February 2020, Pollen Street Secured Lending announced, once again, that the Panel on Takeovers & Mergers had again consented to an extension of the relevant deadline until 14 July 2020 for funds advised by Waterfall Asset Management to conclude on a possible cash offer for the company.
Elsewhere, Metro Bank announced that it had entered in to a period of exclusivity with Retail Money Market, the peer-to-peer lender trading as RateSetter, but added that discussions regarding the potential acquisition were at an early stage.
Lockdown is doing odd things to some people’s perceptions of time, so first a reminder that May was just the second full calendar month in which most of the financial services world has been working from home, with varying degrees of effectiveness.
Zoom, Teams, Skype and Webex are now familiar to almost everyone and look here to stay. Commentators continue to make various prognostications about how the recent hiatus will change the ways in which we work. The death of the office is widely discussed, but as some of us gingerly plan a return to our usual place of work, it is worth remembering that with predictions that have accompanied other major changes in work practices – like the advent of email – such commentators have often had a tendency to overestimate the short term impact, but underestimate the long term.
M&A activity is continuing, albeit at a markedly slower pace. Fewer new deals are being initiated but for those already in motion, understanding and predicting the short- and long-term impact of the coronavirus on a transaction is at the front of buyers’ minds.
What does this mean in practice? Well, for transactions in the due diligence phase it means an increasing focus from buyers on how the target is responding to the Covid crisis. How is it impacting new business? How far are they utilizing government backed support schemes like furlough? How has it changed views on the medium term outlook for costs? – many companies have been forensically analyzing their cost base and are now actively considering whether they still need all the staff and office space that they had at the beginning of the year.
Such is the nature and level of uncertainty that few businesses can say with confidence that they can accurately forecast what the next 12 months will look like. This uncertainty is being reflected in the terms being agreed on transactions, partially in pricing but more commonly through the tweaking of terms, to shift the way risks are shared across buyer and seller. If deal terms outlined in February might have seen 70% of the consideration upfront with the remaining 30% contingent on performance over the next two years, then this might now be only 50% or 60% upfront. On one hand this is a deterioration in what a seller might have received for their business just a few months ago, but on the other it largely reflects the increased level of risk and uncertainty that they will still be subject to if they choose not to sell.
If you would like to discuss how the current situation is impacting your own company’s thoughts or plans for M&A, either in the short or long term and whether as a buyer or seller, do get in touch.
Insurance
As May took the UK into the third full calendar month of lockdown it will come as no surprise that the number of announced M&A deals fell dramatically. Indeed, the biggest Insurance M&A story of the month was about a deal that didn’t happen – with French insurer Covea announcing that it was pulling out of a previously agreed $9bn deal to acquire PartnerRe, despite having publicly said it was committed to the transaction just a few weeks earlier.
The coronavirus pandemic is clearly having a major impact on the insurance sector and with Lloyd’s of London announcing during May that it expects to pay out £3.5bn in claims as a result, it came as little surprise to see two of its largest insurers raising new capital. Embattled insurer Hiscox announced a share placing to raise £375m and was quickly followed by Beazley, who raised £247m through a placing.
There was again M&A activity within the MGA segment, with London-based platform OneAdvent announcing the acquisition of Modus Underwriting from CFC Underwriting. Modus is a digital-first MGA providing niche property insurance.
Within insurance distribution, M&A activity was very limited. Towergate announced two small transactions that it had agreed earlier in the year, acquiring Chippenham-based farm insurance specialist Edwards & Swan Insurance Brokers and a separate deal to buy the book of Education Staff Absence insurance business from Integro Insurance Brokers. The cash consideration in both deals was less than £1m.
Within Insurance services, credit-hire and post-accident services provider Edam Group acquired motor claims business Kingsway Claims.
Lastly, there was continuing financing activity within Insuretech, with a number of high-profile firms raising new capital and demonstrating the continuing appetite among VCs for disruptive insurance business, particularly in personal lines. Innovative pet insurance business Bought By Many announced that it had raised a further £78m of growth equity, cycle insurance specialist Bikmo raised £1.8m in a Series A round that saw participation from insurer Hiscox, and pay-per-mile startup By Miles added £15m in a Series B funding round led by CommerzVentures, the corporate venture capital fund of Germany’s Commerzbank Group.
Investment
The life company Royal London announced the sale of its platform business Ascentric to the fund management group M&G. Around 1,500 advisers use the Ascentric platform, which holds assets under administration of £14bn on behalf of 90,000 customers. It has been part of Royal London since 2017.
With over 95% of them voting in favour, Jupiter’s shareholders gave the fund house their stamp of approval to acquire rival firm Merian Global Investors for £370m later this summer.
US private equity firm Warburg Pincus is injecting around £250m into the merger of Tilney and Smith & Williamson to co-invest in the combined business alongside funds advised by Permira, the private equity group that currently owns Tilney, resulting in a significant reduction in external debt for the combined group. It raises expectations for the transaction to complete in the second half of this year and create a group to be called Tilney Smith & Williamson which is expected to manage £44bn in assets and generate c. £530m of revenue.
Fairstone, the national advice group, added three firms to its buyout programme; Yorkshire-based Brantwood Financial Planning; Durham-based Advanced Financial Services; and Cumbria-based Financial Concepts. Once acquired, Fairstone will gain over £300m funds under management from the three acquisitions.
Elsewhere, digital wealthtech firm Smarterly raised £7m in a Series A funding round led by Major Oak and topped up by angel/crowdfunding investors, the fintech pensions business Smart closed a strategic investment from asset management firm Natixis Investment Management, and Octopus Ventures led a $12.6m Series B funding round in Stackin, the text-based personal finance platform to support its UK launch.
Payments & Lending
In payments, Modulr, a UK Payments-as-a-Service API platform for digital businesses, raised £18.9m in a funding round led by Highland Europe with participation from Frog Capital and Blenheim Chalcot, Global Reach Group, the foreign exchange risk management and payment services business, acquired key elements of EncoreFX’s Canadian operation to expand its global footprint and Fly Now Pay Later, the payment provider for the travel sector raised £35m in Series A equity and debt funding led by Revenio Capital with participation from Shawbrook Bank and BCI Finance.
IBM has taken a 7% stake in we.trade, the blockchain-based trade finance network owned by 12 banks including CaixaBank, Deutsche Bank, Erste Group, HSBC, KBC, Nordea, Rabobank, Santander, Société Générale, UBS as well as UniCredit and commission-free stockbroking app Freetrade has raised £4.5m from more than 5,000 people, using crowdfunding platform Crowdcube.
Citigroup span off its electronic proxy voting platform Proxymity to a consortium of banks backing the new venture with $20.5m including BNY Mellon, Citi, Clearstream, Computershare, Deutsche Bank, HSBC, JPMorgan, and State Street. Meniga, the digital banking technology business closed a €8.5m in additional funding round led by Groupe BPCE, with Grupo Crédito Agrícola and UniCredit and Barclays invested in SaveMoneyCutCarbon, the carbon footprint digital aggregator marketplace.
Elsewhere, financial fraud fighting platform Featurespace raised £30m in a funding round led by Merian Chrysalis Investment and supported by existing investors, ANNA, the mobile-first banking, tax accounting and financial service assistant aimed at small and medium businesses and freelancers, closed a £17.5m round of investment from the ABHH Group, which values ANNA at $110m and enables the founders to retain 40% of the company. Octopus Ventures led a $12.6m Series B funding round in Stackin, the text-based personal finance platform to support its UK launch,digital wealthtech firm Smarterly raised £7m in a Series A funding round led by Major Oak and topped up by angel/crowdfunding investors, and savings technology platform Smart closed a strategic investment from asset management firm Natixis Investment Management.
In line with the broader market, the lending M&A markets continued to be impacted by the ongoing pandemic, typified by Pollen Street Secured Lending announcing that the Panel on Takeovers & Mergers had once again consented to an extension of the relevant deadline until 16 June 2020 for funds advised by Waterfall Asset Management to conclude on a possible cash offer for the company.
However, there were still pockets of activity, notably in digital banking where Starling Bank announced it had raised £40m in a funding round led by JTC and Merian Chrysalis Investment Company; and in the SME lending sector where British Business Investments, a subsidiary of the British Business Bank, announced a commitment of £35m to Harwood Private Capital UK at its first close of its UK SME fund of £70m. In addition, 1pm announced that it had been notified that Cloverleaf 374, a subsidiary of Wellesley Group, had acquired a 19.99% shareholding in the company. Neobank Monzo is also widely reported to be seeking fresh funding at a £1.25bn valuation, which would be a c. 40% discount on its previous valuation of £2bn.
Amigo Holdings provided an update on its formal sale process, announcing that it had received a potential offer at 20.9p per ordinary share, subject inter alia to Amigo’s controlling shareholder, Richmond Group, providing an irrevocable undertaking to vote in favour of the transaction and to halt its steps to change the board composition. However, Amigo had been unable to engage constructively and ascertain Richmond Group’s willingness or not to accept the potential offer.
In separate announcements, Amigo announced that the FCA had launched an investigation into its regulatory compliance with respect to credit assessment; and that Amigo had filed an application for an injunction to prevent Richmond Group from voting in favour of its resolution to remove the entire Amigo board and to appoint its own director nominees.
M&A transactions happen when the buyer and seller share a common view on value. That value is inevitably a point-in-time snapshot, based on each counterparty’s view about what the future looks like for that business. Views on value change over time and as with the price of a listed share, the price for any business can be very different in three months’ time than it is today, higher or lower.
Given the uncertainty inherent in the economy and rapidly changing views on what the future might look like, it is far from certain that the price agreed for any company today will still be accepted by both parties in three months’ time, once the necessary due diligence and legal documentation involved in any deal have been completed.
Until a consensus emerges around both the direction of the economy and the impact of the shutdown on individual companies, we do not expect to see a material rebooting of M&A activity. The level of uncertainty is such that at the moment, we see that acquirers are being much more cautious in their approach and delving further into detail before they commit to make transactions happen.
M&A activity levels were weak against historic norms in Q1 2020, around 20% down. Below, we comment of the drop in activity during April in the sector reviews, but suffice to say we expect Q2 out-turn to be far lower even than was experienced in the financial crisis of 2008.
Many acquirers are still ‘open for business’, but we know from their actions that this is on a much more diligent basis and it is taking materially longer to get to a successful conclusion. Sentiment can change quickly and when it does we will be advising our clients accordingly. However, the message for most sellers today is to hunker down, look after your clients and protect tomorrow’s value.
Insurance
It will perhaps come as little surprise given how much of the economy was either closed or curtailed for the month that there was a sharp decline in the volume of announced Insurance M&A in the month, with only a fraction of the number of transactions seen in a ‘typical’ month (there was just one deal with a value estimated at more than £5m in April, against a monthly average of 2.4 deals in this size range in the sector over the past five years). It remains to be seen how long this might continue, but while we remain in lockdown and until there is greater certainty around the economic outlook, we would expect Insurance M&A volumes to remain subdued. With a large number of ongoing transactions currently paused or just having slowed down, any return to some semblance of normality could well see a quick uptick in announced deals.
Among commercial brokers, two of the ‘hub and spoke’ based consolidators announced further deals, with Global Risk Partners hub business Green Insurance Group acquiring Brighton-based broker RT Williams Insurance Brokers and its appointed representative NIB Insurance Brokers, and Ethos Broking added another deal with the acquisition of Compass member Hughes & King.
Elsewhere, troubled motor broker and MGA Staveley Head, which went into administration earlier in the year, was acquired by One Sure Insurance and US MGA consolidator K2 Insurance Services, a portfolio company of McLarens backer Lee Equity Partners, made its largest overseas acquisition to date with an agreement to acquire selected underwriting business units from Pioneer Underwriting. The acquired business covers property catastrophe reinsurance, financial institutions, international property facultative and marine specialty and is expected to write c.£150m GWP in 2020.
Investment
Rathbones completed its acquisition of Barclays Wealth’s personal injury and court of protection business. The deal sees approximately £450m of funds under management transferred to the investment management arm of Rathbones, as well as 10 team members and a book of 600 clients.
Truinvest, a newly formed group in the IFA sector, took control of Group Rapport, a financial planner business with c. £300m of client assets based in Weybridge.
Family office Stonehage Fleming agreed to acquire the investment activities of Cavendish Asset Management which will involve taking over the running of its range of four OEIC funds as well as Cavendish’s client portfolios, including about £1bn of client assets in total
Fairstone acquired two firms via its downstream buy-out programme, Goodman Chartered Financial Planners and East Devon Associates, adding 1,000 clients and £215m funds under management to the group.
The management of True Potential announced that they are keen to buy out its private equity investor, the US firm FTV Capital, and that they are not interested in floating the company on the stock exchange. Last year True Potential bought back a large part of the stake owned by FTV Capital, which remains a shareholder in the company.
Payments & Lending
In payments Rapyd, the global payments network, entered the card acquiring market through the acquisition of Korta, the payment card service provider, open API platform Yapily raised a $13m Series A funding round led by Lakestar with HV Holtzbrinck Ventures and LocalGlobe also joining in the latest round of financing, cash deposit marketplace operator Flagstone raised £12m in a round led by Omers Ventures and existing investors including Kindred Capital plus Moneysupermarket Group and open banking and regtech platform Railsbank topped up its 2019 $10m Series A funding round with investments from Visa and Japanese VC Global Brain ahead of a push into South East Asia.
Previse, the supplier invoice payment business, raised a $11m funding round led by Reefknot Investments and Mastercard. Existing investors Bessemer Venture Partners, Hambro Perks and Augmentum Fintech also participated. As part of their proposed expanded partnership, NHN Corp invested £3.2m into mobile commerce platform Bango for a 4.7% shareholding as well as investing a further £6.5m for a 60% shareholding in Bango Deep (which owns Audiens Customer Data Platform business) with Bango retaining 40%. The new shares in Bango were admitted to trading on AIM on 16 April 2020.
Tradeteq received funding from Singapore’s central bank, through the Monetary Authority of Singapore, on a project to develop quantum computing-based credit scoring methods for companies and Credit Kudos, the credit scoring business based on open banking, closed a £5m Series A investment round led by Albion Capital with participation from TriplePoint Capital and existing investors Entrepreneur First and Fair By Design.
Elsewhere Privitar, the data privacy platform provider, completed an $80m Series C funding round led by Warburg Pincus, a global private equity firm focused on growth investing, with participation from Accel, Partech, IQ Capital, Salesforce Ventures and ABN AMRO Ventures and identity verification and authentication company Onfido has raised $100m in a funding round led by TPG Growth.
It was very quiet in the lending M&A markets. Pollen Street Secured Lending announced that the Panel on Takeovers & Mergers had once again consented to an extension of the relevant deadline until 19 May 2020 for funds advised by Waterfall Asset Management to conclude on a possible cash offer for the company. Elsewhere, Amigo Holdings announced that its majority shareholder Richmond Group had notified the company of its intention to call an EGM in order to remove the entire Amigo Board. In addition, Richmond Group also notified Amigo that it wished for the formal sales process of the company to continue.
Coronavirus has been, perhaps wrongly, referred to by some as the ultimate ‘Black Swan’ event. But, many people have warned the world was overdue a pandemic for some years and indeed, in some industries, an event like this has been regularly wargamed.
What COVID-19 does illustrate is that the risk of an exogenous shock is always there and can affect any and every business. No one doing their 2020 budgeting or financial planning could have predicted this and it would certainly be a brave forecaster who could confidently say they really know what 2020 or 2021 will look like for their business.
Entrepreneurs are by their nature risk takers and conviction investors. They back themselves, their ideas and their teams to succeed. They are also invariably undiversified. The majority of their personal wealth is usually in a single asset, their business. They generally expect the value of that asset to be greater in the future than it is today, which can influence decisions over whether or not to sell. The most successful entrepreneurs have good timing – they sell at the right time and avoid holding on for too long.
The prospects and value of any business can be negatively impacted by events outside anyone’s control. For most businesses and business owners there will in time be a return to ‘normal’ and patient owners will wait for this before selling. Good businesses will grow and prosper again and valuations should recover.
That said, in selected segments within financial services, for example, aggregate enterprise value for relevant listed companies is currently down by 19% (insurance) and 21% (payments) since 31 January 2020, compared to a 32% fall in the FTSE-250 index over the same time period.
A young entrepreneur might be quite sanguine about drops of such a magnitude. For older business owners however, it might mean putting off their retirement, or having to sell their business for materially less than it was worth just a few months ago. For this reason, it is advisable to plan the derisking and diversification of business wealth sooner rather than later as none of us truly ever know what is really around the corner.
This is what we at IMAS are here to do – to help you form and execute that plan and ensure you maximise value at each point in the cycle.
Insurance
Perhaps counterintuitively given the current disruption, but March was actually a busy month for announced M&A deals in Insurance. This of course reflects a lag effect and the fact that most deals take months to agree – the deals announced in March will have been largely ready to go before the full extent of the impact of coronavirus on the UK became apparent. The impact on M&A levels will only really become clear over the coming months and with many deals being pulled or paused, we would anticipate 2020 deal volumes to be considerably lower than 2019.
Amidst the chaos of a crashing stock market, the largest ever insurance broking transaction was announced, with Aon and Willis combining in an all share deal to create a $80bn leader that might reshape the global broking market in the coming years. On the basis that the transaction is a nil-premium all-share merger, the falling share prices of both companies have less of an impact than if it was a cash deal or Aon (the larger partner) was paying a conventional premium to acquire Willis.
Elsewhere in UK broking, the private equity backed consolidators continued to announce new acquisitions. A number of these businesses use a ‘hub-and-spoke’ model through which their own ‘hub’ brokers make smaller acquisitions, allowing a greater volume of deals to be done than if every deal was done from the centre. The two most prominent of these are Global Risk Partners (GRP) and Ethos Broking, who were both active. GRP commercial broking hubs Sagar Insurance and Green Insurance Group announced acquisitions of East Sussex-based Manor Insurance and Anderson Ashcroft in the North West, respectively. Ethos announced the acquisition of Perry Appleton in Rugby and – via their Saffron Insurance hub – Romford-based C&M Insurance.
Several other broking consolidators also remained active – PIB Group announced the acquisition of RA Insurance Brokers in Croydon, adding to its existing strength and expertise in Motor Trade business, Hg Capital-backed A-Plan acquired Northampton-based commercial broker Cotters Insurance Brokers, Ardonagh added to its existing expertise in the agricultural sector with the acquisition of Rural Insurance Group, and Xenia Broking Group – the broking arm of MGA consolidator Nexus Group – acquired the UK trade credit business of Howden UK. Keeping somewhat below the radar, former Jelf CEO Phil Barton also continued to make acquisitions, taking control of CGI Insurance in Staffordshire. Companies House filings revealed that fellow industry luminary Stuart Reid and the private equity partners that previously backed Barton at Jelf are also involved in the new initiative.
In other deals, Dunedin-backed Kingsbridge Group, which offers insurance products for contractors, announced that it would be acquired by US-based NSM Insurance, which already owns Vantage Insurance in the UK, Sam White’s Freedom Services Group announced the acquisition of home insurance specialist Homelyfe, Sutton Winson acquired Kent-based Flexible Health Insurance Brokers, ReSolution Underwriting acquired Trilogy Managing General Agents from Randall & Quilter, and MGAM, a platform-based MGA offering products for SMEs was taken over by Beach & Associates, itself part of US broker Acrisure.
In Insurance technology, policy management platform provider Instanda announced it had raised $19.5m in a Series-A capital raise led by Assembly Capital Partners.
Lastly, a notable deal was announced between carriers with the announcement that French insurer Covea is to acquire EXOR-owned PartnerRe in a $9bn deal. The transaction was announced early in the month but Covea has recently confirmed it remains committed to the deal, in spite of the ongoing market disruption.
Investment
In the wealth management space, Mattioli Woods acquired Hurley Partners, a wealth management and pensions specialist with £570m of client assets, for a maximum of £25.6m in a combination of cash and shares, including £2.6m of net assets. Ascot Lloyd acquired Norfolk-based Ring Associates, an IFA firm with 12 advisers and £382m in client funds under advice. Citimark Partnership bought the financial planning arm of pension consultancy firm Trigon, adding £60m of client assets to take its total assets under advice to £300m. Our research also noted that SDB Strategic Planning was acquired by Courtiers Group Holdings and Hurst Point Capital, a vehicle backed by the international private equity fund, The Carlyle Group, completed its £91m recommended offer for Harwood Wealth Management Group.
In fund management, ARA Asset Management, a Singapore-based asset manager focused on Reits, completed the acquisition of a majority stake in Venn Partners, a London-based secured asset specialist investing in the UK and Netherlands mortgage and CRE debt markets with £5bn AUM.
Elsewhere in the sector, Iress, the financial software provider, acquired pension and investment data provider O&M Systems, which provides comparison tools for financial advisers, as well as pension and platform providers, and has integrated O&M’s software directly into Iress’s Xplan software. Moneybox, the investment app provider, raised £8.7m in a Series C venture funding from Eight Roads and other undisclosed investors, valuing the business on a pre-money basis at £102m.
Payments & Lending
COVID-19 has had an immediate impact on the payments sector as transaction volumes, particularly those in the travel and hospitality-related sectors, impact commission-based businesses. This is exemplified by the renegotiation of announced terms for EML Payments’ acquisition of white label payments and banking-as-a-service platform Prepaid Financial Services, which was originally announced in November 2019.
Whilst the acquisition remains strategically important to EML, the economic reality of COVID-19 changed EML’s position on value and also on its balance sheet position going forwards. The deal therefore completed at a significant discount to the original terms, with upfront valuation falling 42% from £226m to £131.5m funded through cash (on the balance sheet), shares in EML (to be issued) as well as interest bearing deferred acquisition payments due to mature in June 2024 and June 2025 subject to early repayment at EML’s election. The value of the £55m performance-based three-year earnout remains the same, albeit based contingent on rebased annual EBITDA targets.
Also in payments, Accuity, the financial crime and KYC business within RELX, acquired Apply Financial the automated payment validation solutions provider, ING Ventures invested €4.5m as part of a $42m Series B funding round in natural language processing vendor Eigen Technologies announced in November 2019, Argent Labs, a cryptocurrency wallet developer raised $12m in Series A funding led by Paradigm Ventures, with participation from Index Ventures and other investors, QRails, a cloud-based, open API payments issuer / processor, closed a $8m Series A funding round led by EFM Asset Management, Billon Group, the blockchain technologies national currency and business document processor, raised a $6m Series A financing including FIS, Mencey Capital, VCF III and existing investors and finally foreign exchange business Global Exchange Group is understood to be considering a $150m – $200m potential purchase of International Currency Exchange.
Elsewhere, financial services consulting firm Delta Capita secured a $50m investment from Prytek Holdings, the investment group and Riskonnect, the integrated risk management solutions provider, acquired Xactium, the GRC software provider.
UKAR confirmed the completion of its previously announced sale of a portfolio of c. 5,000 NRAM, B&B and Mortgage Express equity release loans to Rothesay Life. UKAR also announced that the process to explore a sale of its residual asset portfolios and legal entities (having achieved its objective of repaying the Government’s financial investment in B&B and NRAM) was being put on hold given the ongoing dislocation in global markets.
The high-cost short-term credit sector continued to see casualties: Uncle Buck Finance entered administration following FCA action which required the cessation of new lending; and Cash on Go, trading as Peachy.co.uk and Uploan.co.uk, was also placed into administration. In addition, Caversham Finance trading as BrightHouse, the rent-to-own retailer which also offered short-term cash loans to consumers, was placed into administration.
Workplace finance platform Salary Finance acquired Neyber in a deal structured as a pre-pack administration. Police Mutual and Goldman Sachs, former Neyber investors, joined existing investors Blenheim Chalcot and Legal & General who continue to invest in Salary Finance.
Tandem Bank was reported to have raised c. £60m from investors including Qatar Investment Authority and to have acquired a green lender (focused on solar panels); LoanClear, the investor servicing company spun out of Dynamic Credit, acquired Brismo, the loan performance measurement platform; Greensill, the alternative supply chain finance business funded by SoftBank Vision Fund, acquired Earnd, the salary instalment business; Bibby Financial Services announced the sale of its North American business to Global Merchant Fund; Pollen Street Secured Lending announced that the Panel on Takeovers & Mergers had consented to an extension of the offer timetable to 21 April, by which time Waterfall Asset Management must determine its position with respect to a possible cash offer for the company; and Assetz Capital announced that it had secured £15m British Business Investments funding commitment to support new lending to the development finance and housing sectors.
On the top of investors’ minds right now are probably the potential impact of the spread of the coronavirus. From an M&A perspective, the question is whether it will materially depress value, i.e. is the buyer over-paying, or appetite? This is leading to the rapid re-emergence of the so-called MAC (material adverse change) clauses in sale and purchase agreements, allowing the buyer to walk away from a deal (between signing and completing it) if the clause can be invoked. The definition of materiality is obviously key and will, no doubt, secure the workload for lawyers in the current climate of rising fear.
Investors’ reaction to the threat of the virus has come after a string of M&A deals were announced last month, particularly noticeable in the asset management industry. As Jupiter Fund Management announced that it had agreed to buy Merian Global Investors, news also came in about Franklin Templeton confirming the acquisition of its US peer Legg Mason for $4.5bn. This follows Liontrust Asset Management’s acquisition of Neptune Investment Management and Premier Asset Management’s merger with Miton Asset Management late last year.
You can’t help but feel that active managers are being significantly impacted by the tracker funds’ competitive annual management charges, especially in the protracted low yield environment we are currently experiencing. When the deal with Jupiter was announced, Merian had lost nearly a third of the £31bn AUM (and value) it had when the business was spun out of Old Mutual/Quilter in June 2018 and Jupiter itself had suffered recent outflows of £3bn of AUM. This coincides with data from the Investment Association showing that retail investors bought a record of £18bn worth of trackers funds last year.
With investment management fees under pressure, coupled with recent significant stock market volatility, scale matters more. Before the news on Jupiter’s acquisition of Merian, rumours circulated that it was itself the takeover target of the US manager Alliance Bernstein and GAM has also been singled out as a potential takeover target.
Whatever your specific circumstances are and whether you are directly or indirectly exposed to the risks above, we would welcome your enquiry about the strategic options of your business and help you successfully conclude a deal in these uncertain times.
Investment
Among the asset managers, Jupiter Fund Management agreed to acquire Merian Global Investors in a deal worth up to £390m in equity, plus taking out £29m of debt, which will see the private equity fund, TA Associates, the current majority owner of Merian Global Investors, hold 16% of the enlarged group. Investec confirmed the demerger plans for its asset management group Ninety One, the rebranded Investec Asset Management, with a listing on both the main market of the London Stock Exchange and the main board of the Johannesburg Stock Exchange. Polar Capital agreed to acquire a value equity investment team from Los Angeles-based asset manager First Pacific Advisors.
In the life sector, Pension Insurance Corporation Group, the parent company of Pension Insurance Corporation (PIC), the specialist insurer of defined benefit pension schemes, announced the completion of the previously announced capital raise of £750m of new capital to support the continued development and growth of PIC in the pension risk transfer market from its existing shareholders, including Reinet Fund S.C.A., Luxinva, a wholly-owned subsidiary of Abu Dhabi Investment Authority, and CVC Strategic Opportunities I. Bridgepoint Development Capital invested in a significant minority in Reassured, one of the UK’s largest life insurance brokers, to fund the future development of the business.
In the wealth management sector, Citimark Partnership acquired Chawker & Co, a London-based family office advisory firm and the discretionary portfolio manager, IPS Capital, bought Prospect Wealth Management, and Independent Wealth Partners (IWP) acquired Scottish financial planning firm AGL Wealth Management. We also note that Bristol-based, Gregory Adam Financial Management, appears to have changed control to Ascot Lloyd and it was reported that Societe Generale pulled the sale of its private banking subsidiary, Kleinwort Hambros, and fund manager Harwood Capital had dropped its bid for Frenkel Topping, the specialist wealth manager.
The low-cost trading and retail investment platform provider, Interactive investor made a recommended offer to the shareholders of its peer, Share plc, trading as The Share Centre, for £61.9m in cash and shares in Interactive investor. Private equity fund AnaCap invested in Wealthtime, the adviser investment platform with £2bn of AUA and Royal London was rumoured to be selling its adviser wrap platform, Ascentric.
Elsewhere in the sector, FNZ, the wealth management services provider, secured an investment from Temasek, the Singapore-based investment company, alongside existing investors Caisse de dépôt et placement du Québec and Generation Investment Management LLP. SIPP operator Guinness Mahon sold the business and certain assets, including around 4,000 self-invested personal pensions (SIPPs), to Hartley Pensions after entering into administration and ClearMacro, the independent investment analytics provider, secured an investment by affiliates of British Columbia Investment Management Corporation.
Insurance
After what was a very busy January for sector M&A in general insurance, February was much more muted with fewer than a dozen UK transactions announced. The landmark deal in the month was of course Searchlight Capital’s investment in broking consolidator Global Risk Partners, which was announced early in the month and we reported on in the January newsletter.
In broking, Bollington Wilson announced two acquisitions, picking up Harrogate-based trade credit specialist Prophet Trade Credit and Sutton Coldfield-based commercial broker CLA (Risk Solutions). Private equity firm Inflexion first backed the buyout and merger of Bollington and Wilsons in November 2017. It made no acquisitions during 2018-19 but has already announced three deals during 2020.
In personal lines, current consolidator of reference Ardonagh acquired motorcycling specialist Bennetts from Saga for a reported £26m, the same price Saga was reported to have purchased the business for when it acquired it from BGL Group in 2015. Ardonagh already owns motorcycle specialist Carole Nash. Family-owned N&W Investment, the owner of High Net Worth specialist Stanhope Cooper and MGA Renovation Underwriting, acquired London-based Insurance Tailors, adding around £2.5 million of GWP.
Among the PE-backed consolidators serial acquirer PIB Group announced its 26th deal with the acquisition of Croydon-based BK Insurance Brokers, an independent brokerage focused on the property, corporate, private clients and SME sectors, and ECI-backed Clear Insurance acquired Light Indemnity Solutions, a London-based right to light specialist.
In Insurtech, there were three notable UK fundraising transactions with data & analytics business Concirrus raising $20 million in a Series B round, subscription-based SME broker Digital Risks securing $10.4 million and AI business Tractable adding $25 million in a Series C round.
Payments & Lending
In payments, The Brink’s Company purchased the majority of G4S’s cash operations for c. $860m (£660m), Revolut, the banking services platform raised $500m in Series D funding led by US-based growth capital firm TCV alongside a number of existing investors in a funding round valuing Revolut at $5.5bn and payment platform Checkout.com acquired smart routing-based payment optimization startup ProcessOut.
Small World Financial Services, the money transfer provider backed by Equistone, acquired the international payments company MoneyGlobe, Foreign Currency Direct acquired the corporate FX unit (originally called Baydonhill) of Earthport and Lycamobile, the world’s largest international mobile virtual network operator, invested in financial management systems provider Infor SunSystems.
In digital assets, Elliptic, the cryptoasset risk management solutions provider, received a $5m investment from Wells Fargo Strategic Capital, topping up its Series B funding round announced in September 2019, bringing the total amount raised to over $28m and Copper.co, the custodian for digital assets, raised a $8m Series A led by Target Global, LocalGlobe and MMC Ventures.
Behavox, the AI based financial services RegTech secured a $100m investment from SoftBank Vision Fund 2.1, JUMO, the next-generation financial services platform for emerging market entrepreneurs, raised $55m in debt and equity funding from new and existing investors including Goldman Sachs, Odey Asset Management and Leapfrog Investments, enterprise data management RegTech SteelEye secured $10m growth capital in a round led by the FinTech Strategic Investments team at Eight Roads, the proprietary investment firm backed by Fidelity, alongside existing investor Illuminate Financial and Open Banking-based home finance start-up Youtility raised £4.5m led by Michael Spencer, Barclays and Ascension Ventures.
There were mixed fortunes in two areas of the lending M&A markets, namely digital challenger banking and publicly listed investment funds offering direct credit exposure to loans typically originated in the non-bank sector.
Starling Bank announced that it had raised £60m from its existing investors, Merian Global Investors and JTC, enabling the bank to continue its expansion and core banking technology firm Thought Machine raised $83m in Series B funding led by Draper Esprit alongside existing investors Lloyds Banking Group, IQ Capital, Backed and Playfair Capital. However, N26 announced its exit from the UK banking market citing the effect of the EU Withdrawal Agreement that it will be unable to operate in the UK in due course with its European banking licence.
Pollen Street Secured Lending announced that it was in discussions regarding a possible cash offer by funds advised by Waterfall Asset Management. The Board had confirmed to Waterfall that the possible offer at 900p per share with retention of the declared dividend of 12p per share was at a level that the Board would be minded to recommend. However, Hadrian’s Wall Secured Investments announced that it had concluded its review of strategic options and had determined that the company should be put into managed wind-down with cash returned to shareholders.
Elsewhere, property development lender Iron Bridge Finance announced it had acquired a majority interest in Orlandis Capital, a lender to residential property developers; and Manx Financial Group announced that its wholly owned subsidiary Conister Bank intended to increase its shareholding in equipment finance specialist Beer Swaps, trading as Ninkasi Brewkit Rentals, from 20% to 75% for c. £0.5m. Blockchain-based supply chain and trade finance startup Envoy Group secured a $13m investment from Alcedo Digital Ventures and B-Social completed a £7.8m seed funding round in its journey to become a fully-licensed bank.
A strong start to 2020
January has been a busy month for transactions across the board in the financial services industry, with deal volumes for 2020 likely benefitting from the relative clarity provided by the December election result and technical completion of the UK’s departure from the EU although only the coming months will reveal what the Brexit transition really means for business and M&A transaction volumes.
Many of you will be aware of rumoured changes to Entrepreneurs’ Relief expected to be announced in the upcoming budget on 11th March and the potential impact on private business owners when they come to sell. Whilst those sellers already at the late stages of a sale process may be able to rush to conclude a deal before any change is introduced, for most owners a “new normal” under a less generous regime looks inevitable. Assuming however that CGT is kept at 20%, the tax regime for sellers will remain below its historic average.
Noteworthy for January’s announced transactions was the activity in the lending sector, both in terms of M&A deals for traditional lending and related service businesses, as well as a number of financing deals for innovative businesses. Significant capital is being deployed (from both the UK and overseas) to redefine the proposition in SME lending and salary finance in particular, opening up new and more user-friendly ways for customers to borrow and service their loans.
Looking forwards, we expect to see more deal activity driven by Open Banking, as businesses increasingly understand how to leverage this fundamental and regulatory-driven change to build shareholder value. Visa’s $5.3bn acquisition of US-based Plaid, announced this month, confirms the value of the API economy in financial services and, as such, will undoubtedly influence perceptions around this theme going forwards.
Closer to home, we continue to see significant interest in the UK financial services industry from acquirers in UK/Europe and further afield. If you are interested in a transaction for your business, either now or in the future, we’d be delighted to hear from you.
Insurance
The new year got off to a relatively lively start, with January seeing a number of transactions involving mainly commercial lines businesses at the smaller end of the size spectrum and one major deal as a consolidator was sold to a new private equity backer. In 2019 there was a marked increase in the number of smaller M&A transactions (values less than £5 million) in the sector, as consolidators faced up to a reduced supply of suitable mid-sized targets and instead targeted smaller businesses – we expect this trend to continue in 2020.
Among the broking consolidators, Global Risk Partners announced that it had acquired Leicestershire-based the Birrell Group to act as a new Midlands hub, Finch (itself part of Ethos) bought Richmond-based Shene Insurance, Broker Network-owned Lockyers acquired Bernard Saxon General Insurance Services (BSIS) and Aston Lark announced the acquisition of Isca Barum, an Exeter-based broker best known for its specialism in farm and smallholding insurance.
It was announced at the beginning of February that Global Risk Partners had itself changed ownership, following the acquisition of a majority stake in the business by Searchlight Capital Partners, providing further capital to support their continuing acquisition strategy.
In other broking deals, Somerset Bridge Insurance (the artist formerly known as Eldon Insurance Services …) sold Business Choice Direct, its SME and tradesman specialist, to Lloyd & Whyte. This was one of two acquisitions by Lloyd and Whyte during January, which also saw them take over control of property wholesale specialist Stride Insurance. Elsewhere, ex-Jelf CEO Phil Barton’s MRIB combined with La Playa, and Inflexion-backed Bollington acquired Ashgrove Insurance Services.
In personal lines, specialist motor broker Complete Cover Group was reported to have been sold to Sun Capital Partners, giving the business (which was formerly Allen & Allen) a new Private Equity backer almost eight years to the day since it was acquired by Darwin Private Equity.
Among insurers, Zurich-owned Navigators & General acquired a book of marine trade business from NMU; and Ecclesiastical Insurance (which also owns brokers Lycetts and SEIB) was revealed to have acquired a minority interest in the aforementioned Lloyd & Whyte.
In Insurance Services, acquisitive claims specialist Davies announced that it was moving into the legal services sector with the acquisition of Keoghs, an insurance-focused law firm.
Finally, underwriting agent CFC Underwriting announced it had acquired ThreatInformer, a business providing data to support brokers, underwriters and reinsurers in the Cyber market, Optio (the owner of Ascent Underwriting and Cove Programs) acquired Newbridge Risk Partners from Castel Underwriting, and Coverys European Holdings, an agency platform in the professional lines market, announced that it had acquired Italian MGA and Lloyd’s coverholder AEC Wholesale Group.
Investment
It was the wealth management sector that provided the action this month: The private equity house, CBPE Capital, invested in Perspective Financial Group, a wealth manager with 15 offices across the country and £2.8bn of assets under management. Frenkel Topping announced it had received a preliminary approach from Harwood Capital, the London-based “active value” fund manager, about buying the entire share capital of the AIM-listed national advice firm which has over £850m in assets under management.
Quilter Private Client Advisers acquired national advice firm Prescient, adding eight financial advisers to its existing regional offices and more than £800m of assets under advice (AUA). Prescient’s main office is located in London and has regional offices in Glasgow, Exeter and York. Fairstone Financial Management bought Hamlyn Financial Services and Wagstaffs Wealth Management, adding £263m funds under management, and Hertfordshire and London-based adviser firm Lumin Wealth acquired Everett MacLeod, an independent planning firm based in London. Aspinalls Group was sold to HFMC Wealth, adding £130m of client assets to the group. We also noted that Prosper Independent Financial Advisers changed control to Murdoch Asset Management.
In the employee benefits consultancy market, Mackenzie Taylor took control of Bromsgrove-based Johnson Fleming.
Elsewhere among the service providers, Hargreaves Lansdown sold FundsLibrary, the European fund document and data dissemination business, to Broadridge Financial Solutions and YFM Equity Partners backed a £5.6m investment into the online platform for financial specialists, Unbiased EC1. Options, the capital markets services provider, announced a growth investment from private equity fund Abry Partners and Icap’s founder Michael Spencer committed £25m to Element Ventures, a new £100m fintech venture fund set up by former members of Icap’s Euclid Opportunities incubator.
Payments & Lending
The payments sector continued to be active in early 2020. B2B cross-border payments platform Currencycloud raised $80m in Series E funding from Visa, BNP Paribas and Siam Commercial Bank. International Finance Corporation and SBI Group also joined the round alongside existing backers Sapphire Ventures, Notion Capital, GV, Accomplice, and Anthemis. SME payments platform DNA Payments acquired Zash, the point of sale software and payments services business, and Foreign Currency Direct, the foreign exchange business owned by Pollen Street Capital, acquired the corporate FX business formerly known as Baydonhill, from Earthport, the cross-border payments business acquired by Visa in 2019 following a bidding war with Mastercard.
Accenture acquired Mudano, the financial services analytics and applied data science consultancy firm, BT Pension Scheme Management, the executive arm of the UK’s largest private sector pension scheme, announced the acquisition of a majority stake in pensions software business Procentia, Vitruvian Partners led a $85m Series D financing for corporate tax management SaaS provider Yunzhangfang, Barclays Bank has made a strategic investment in UK digital receipts startup Flux and cash allocation software business Rimilia secured $15m in growth funding from existing investors Eight Roads Ventures, Kennet Partners and Silicon Valley Bank.
There was renewed activity in the traditional lending M&A markets as the new year unfolded. Amigo Holdings announced that it had been informed by its controlling shareholder, Richmond Group, that it was a willing seller of its 60.66% shareholding in Amigo. As a result, Amigo Holdings announced it was launching a strategic review and formal sale process. NewDay announced that it had reached an agreement to acquire Pay4Later, a retail finance technology platform trading as Deko.
In the loan servicing and asset management sector, Link Group announced that it had signed an agreement, subject to regulatory approvals, to acquire Pepper European Servicing (PES) from Pepper Group for an upfront consideration of €165m with an additional consideration of €35m depending on achievement of AuM thresholds and growth milestones. PES, which includes Pepper (UK), has c. €40bn AuM.
Open Banking platform Tink closed a €90m investment round at a post-money valuation of €415m co-led by Dawn Capital and HMI Capital alongside existing investor Insight Partners. Other participants included new investor Poste Italiane as well as existing backers Heartcore Capital, ABN Amro Ventures and BNP Paribas’ venture arm, Opera Tech Ventures.
In the property sector, online mortgage broker Trussle announced it had secured £7.5m new funding from Rabo Frontier Ventures and existing investors Goldman Sachs Growth, Finch Capital and Propel Venture Partners. Short-term property finance lender Signature Private Finance announced that the senior management team had successfully completed a £16.8m management buyout of the business, securing new investment from Foresight Group.
Working capital finance business Demica raised £22.8m in Series C financing led by Simcah Management and fastPAYE, the salary finance app backed by ShopWorks completed its first round of fundraising.
Elsewhere, Liberis Group announced that it had successfully closed a $42m funding round led by FTV Capital; Newable announced the acquisition of a majority stake in vehicle finance firm Synergy Automotive; and JBW Group announced it had acquired Advantis Credit.