Covid continues to impact all our lives and often in ways we did not expect (Boris will have his own views on this). Aside from the Lending sector, in which transaction volumes continued to decline partly as a result of a drop in the number of transactions in the Payments sector, M&A activity remained buoyant across the financial services last year.
The most striking feature of the chart above is the big jump in M&A activity in Q1 2021, as private owners of (mainly) insurance brokers looked to pre-empt a much-touted – but ultimately never enacted – increase in the rate of Capital Gains Tax. The Investment sector, possibly better tuned into issues around tax, took – correctly as it turned out – a much more sanguine view.
One cannot read the business pages without seeing a reference to some private equity firm tabling another multi million (or billion) pound deal for a UK business. Collectively, as buyers they have enormous influence, either by purchasing businesses directly, or indirectly, by providing new capital to firms that are themselves consolidating smaller units in particular sectors.
Despite significant fluctuations in the levels of overall Financial Services M&A activity their market share has remained almost entirely unchanged over the past three years, with an involvement as buyers in just over 50% of all transactions (by volume).
Further analysis is given at the bottom of this email but it remains very much a first look. In the next couple of months we will be producing more detailed reports on 2021 M&A in Insurance Distribution and the Investment sectors. Suffice is to say increased valuations helped stimulate deal activity and we will be looking at recent valuation trends in greater detail in our reports.
That said, if you would like to gain a greater understanding of current sector valuations and how these relate to your own company, please do not hesitate to contact me or one of my colleagues.
Insurance
The final month of 2021 proved relatively quiet in terms of UK Insurance M&A but marked the end of a busy quarter for sector M&A volumes, in a year in which just under 40% of all announced M&A (by volume) happened in the first quarter.
There were two notable transactions in the commercial motor segment, with insurtech Humn.AI acquiring fleet insurance MGA Walsingham Motor Insurance, and Pollen Street-backed Markerstudy acquiring Clegg Gifford, the long-established Lloyd’s broker best known for its motor trade expertise and taxi insurance, where it operates as Westminster Insurance.
Markerstudy did not stop there however, also announcing the biggest transaction of the month with its acquisition of BGL Insurance, the insurance arm of Comparethemarket owner BGL Group, in a deal worth a reported £400m.
Elsewhere in broking M&A, Howden announced that it had acquired Ross Insurance Group, credit insurance and surety specialist Xenia Broking (part of Nexus Underwriting) acquired Peter Hill Credit & Financial Risks in Northampton, Global Risk Partner hub business Alan & Thomas acquired BIG Insurance in Bournemouth, and Northern Irish broker Dickson & Co. announced the acquisition of Morrison Associates. Howden-owned Aston Lark also continued its steady stream of acquisitions – ending 2021 with more than 20 new UK deals – with the acquisitions of both Mainstay Insurance in East Sussex and the client book of Choice Benefits, a Private Medical Insurance specialist in Lancashire.
Finally, the Preservation Capital-backed consolidator Optio Group announced that it had acquired the W&I specialist MGA Brockwell Capital.
Investment
abrdn agreed to buy Interactive Investor, in a deal worth £1.49bn. The platform will operate as a standalone business within abrdn’s “personal vector” division. Nasdaq-listed Morningstar acquired Australian-listed Praemium’s operations in the UK, Jersey, Hong Kong, and Dubai for a cash consideration of £35m.
In the asset management sector, FTSE 250-listed Liontrust Asset Management agreed to acquire Majedie Asset Management for an initial £80m, plus an additional deferred consideration of up to £40m. The deal, due to complete next April, will increase Liontrust’s AUM by £5.8bn to more than £42.3bn, and boost its position in the institutional market. Schroders acquired a 75% shareholding in London-based renewable infrastructure manager Greencoat Capital, adding £6.7bn in AUM, for an initial consideration of £358m. Premier Miton and AssetCo were granted extensions until 18 January to make their formal bids for River and Mercantile which runs £4.4bn in assets. It was also reported that the private equity group, CVC Capital Partners, is mulling a stock market listing, that could value the business up to £11bn.
In the wealth management space, Canaccord Genuity Group agreed to acquire Punter Southall Group’s wealth business for a cash consideration of £164m. The deal includes the intermediary-facing brand Psigma. Digital wealth manager Moneyfarm bought Wealthsimple’s UK business book, adding £272m in AUM to its existing £2bn. IFA consolidator Independent Wealth Planners has bought Throgmorton Wealth Management adding £135m of AUA. National advice firm Succession Wealth acquired Bankhouse Financial Management (£211m AUA) and JCF Financial Services (£151m AUA), bringing its total AUA to £8.4bn.
Elsewhere in the sector, XPS Pensions Group acquired the business of Michael J Field Consulting Actuaries to further develop its self-invested personal pension (SIPP) business. Michael J Field is a self-invested personal pension (SIPP) and small self-administered scheme (SSAS) provider based in Manchester.
In the fintech sector, FNZ officially offloaded its GBST and agreed to reacquire the latter’s capital markets division from global private equity fund Anchorage Capital Partners and London-based Akoni Hub was acquired by insurtech group Stubben Edge. The deal will see Akoni’s cash management service added to Stubben Edge’s insurance and financial services products.
Lending
In a quiet end to the year, Amigo Holdings provided an update on its redress proposals, subject to Court and creditor approval, based on two alternative schemes of arrangement: a preferred ‘New Business Scheme’ contingent on new lending restarting and a successful equity raise of at least £70m, or a ‘Wind-Down Scheme’.
Monzo was reported to have closed a funding round of $475m from new investors including Abu Dhabi Growth Fund. Bumper, the buy now, pay later provider, raised $12m in a Series A funding round from investors led by Autotech Ventures, Jaguar Land Rover’s fund InMotion Ventures and Porsche Ventures.
There were also maiden acquisitions by Monese and OakNorth. Monese announced the acquisition of Trezeo, broadening its credit and lending proposition for the self-employed. OakNorth announced it had agreed to acquire Fluidly, a cashflow forecasting service for SMEs.
Elsewhere, NatWest Group announced that it had signed a legally binding agreement with Permanent TSB for the sale of c. €7.6bn of gross performing loans (comprising non-tracker mortgages, micro-SME loans and Ulster Bank Ireland’s asset finance business) as at 30 June 2021 and 25 branch locations.
One of Warren Buffet’s great aphorisms is “only when the tide goes out do you discover who’s been swimming naked.”
Pre ‘Big Bang’, when I first started working for a merchant bank (as they were called back in the day) if you wanted the price of a share, one would phone up a stockbroker, who would then call their desk – located on the edge of the trading floor – and a “blue button” would go and ask a stock jobber the bid/offer price for a particular number of shares in whatever stock you wanted to trade. This information was then relayed back via the same (laborious) process.
Today, assuming one has a phone signal, one can access a mass of market data in seconds. This would have been unimaginable pre-Big Bang.
Access to public markets has been transformed by technology, but private markets remain as opaque as ever. Of course, this means pricing is much fuzzier (i.e. exact comparable transaction data for pricing often does not exist, and there is a lack of transparency around typically complex deal structures) but, more importantly, if prices are changing significantly it is generally not apparent. If prices are falling then the market becomes prone to seizing up, as vendors chase prices that no longer exist. When prices are moving upwards, vendors typically miss out, as they have very limited data points – invariably fewer than the buyers – and are only too pleased when the value they had been looking for is achieved.
Pricing of quality financial services businesses has been on an upward trend for the past 12 months, though this was partially cloaked by the fact that many owners of private companies looked to exit before the March 2021 Budget, creating a temporary surge in supply. That supply has since decreased, resulting in the emergence of significantly higher prices, but many vendors lack this appreciation – or the tools necessary to extract the higher values that are currently available from the purchasers circling their businesses.
Purchasers will reluctantly acknowledge that vendors who are advised almost invariably achieve better terms. But when prices have been on an upward trend, this has never been truer. As an adviser in the “flow” our knowledge of both pricing and buyers allows our clients to benefit from the current incoming tide.
If you’re a business owner looking to explore exit options, or simply want to find out more about the market, please do not hesitate to contact us on the numbers below.
Insurance
After a very active October, in which more than twenty new UK insurance transactions were announced, November has been rather more muted, with fewer than half that figure.
In broking, Aston Lark demonstrated that its recent transaction with Howden is unlikely to be a barrier to further dealmaking, with two new acquisitions in the month, namely Innovation Broking, a commercial broker employing 30 staff in London and Watford, and Philip Williams & Company, a specialist broker based in Warrington that is best known as a group scheme provider to Police Federations and other law enforcement agencies.
Also among the broking consolidators, Global Risk Partners’ Dorset-based hub business Alan & Thomas Insurance Group announced the acquisition of Aquilla Insurance Brokers, a specialist broker in the real estate segment, and Clear Group acquired H R Jennings & Co, a long-established broker in South Croydon with specialisms including light aircraft and personal marine.
There were two transactions involving health insurance intermediaries during the month, with GRP healthcare hub Premier Choice Group announcing the acquisition of Equity Health Solutions in Bournemouth, and Chelmsford-based commercial broker Ascend Broking Group adding local provider SMP Healthcare, to help grow the group’s healthcare offering.
Finally, it was reported in the trade press that Xenia Broking Group, part of Nexus Underwriting, has acquired the trade credit and financial and specialty risk teams from Lloyd’s broker Parker Norfolk & Partners, and that MGA iprism Underwriting Agency had completed a management buyout, led by current Managing Director Ian Lloyd.
Investment
abrdn confirmed talks about Interactive Investor with JC Flowers & Co, the manager of the funds which own the retail investment platform. Indeed, the purchase of the platform for £1.5bn was subsequently announced on 2nd December.
In the asset management space, River & Mercantile Group (R&M) was keenly pursued by both Premier Miton Group, the London-listed asset manager, proposing a merger that would create a business with more than £18bn of assets under management, and AssetCo, chaired by Martin Gilbert, which also released a statement confirming it had submitted a “non-binding securities exchange proposal” for R&M.
Elsewhere in the asset management sector, Schroders acquired Cairn Real Estate, a real estate fund and asset management business, based in the Netherlands, with €1.3bn of AUM.
In the wealth management sector, Kingswood Holdings acquired Metnor Holdings and its Harrogate-based subsidiaries, IBOSS Asset Management and Novus Financial Services, adding over £1.4bn in AUM and AUA. Kingswood Holdings also bought Money Matters North East for up to £3.4m. MWA Financial acquired Essex-based CHC Wealth Management from chartered accountants Clemence Hoar Cummings, adding £380m in assets. MKC Wealth acquired the independent advice arm of Quilter-owned Lighthouse Group. Tilney Smith & Williamson strengthened its presence in the North East by acquiring Explore Wealth Management, which will be added to its Newcastle office. Independent Wealth Planners announced three acquisitions: Premier Wealth Management, which will bring £260m in AUA; Scotland-based Alex M Grant and Surrey-based Custodian Wealth Management, the latter two adding a combined £362m of AUA. Progeny acquired J M Glendinning Financial Services, expanding its footprint across Leeds and the broader Yorkshire area. Fairstone bought out Northern Ireland-based Fairstone NI, a firm that had joined Fairstone’s downstream buyout model in 2015, adding £150m in AUA. Perspective Financial acquired St Lawrence Investment & Pension Solutions, adding £55m in AUA. Beckett Investment Management bought Felixstowe firm Paul Schwer Financial Services.
It was also reported that Succession Wealth had been put up for sale by Inflexion, for around £400m, with a formal auction expected in early 2022.
Lending
Allica Bank made two significant announcements during the month: its first major acquisition with an agreement to acquire c.2,000 SME customers and c.£0.6 billion of associated lending from AIB Group (UK) following AIB’s exit from the SME market in Great Britain; and a £110m Series B funding round led by Atalaya Capital Management alongside existing lead investor Warwick Capital Partners.
Digital consumer lender Jaja Finance announced that a consortium of investors, led by existing shareholder KKR and including entities owned by investment funds managed by TDR Capital, had reached an agreement with Jaja to become majority shareholders of the business. Original investors, including IAG Silverstripe, will retain significant holdings.
Secure Trust Bank announced that it had agreed to acquire AppToPay to support its planned entry into the digital Buy Now Pay Later market. Arbuthnot Banking Group announced that it had disposed of its remaining shareholding of c. 2.14% in Secure Trust Bank, raising proceeds of c. £4.8m.
Elsewhere, Metro Bank confirmed that it had received and engaged in an approach from funds affiliated with The Carlyle Group regarding a possible offer for the bank. However, two weeks later Carlyle and Metro Bank announced that they had agreed to terminate such discussions.
With last week’s Budget, the Chancellor decided to approach “balancing the books” with substantial rises in income tax (which is what National Insurance really is) and Corporation Tax, without resorting to increasing Capital Gains Tax – he is, after all, a Tory Chancellor. This is the cherry on the cake for business owners seeking to sell in the short to medium term.
For those owning businesses in financial services, the cake itself is a level of demand that is running well in excess of supply. This leaves private equity backed acquirers with a dilemma; they have to buy to meet their growth plans but, with prices being bid up, they risk being forced to give up more of the value of the synergies in the deal (as well as the potential returns they hope to achieve through ‘multiple arbitrage’ – or ‘buying cheap, selling high’, in layman’s terms) to the sellers of those businesses in order to be competitive.
As a consequence, buyers devote considerable efforts to securing “off market” transactions, where no adviser is involved and, ideally, the seller has only talked to a couple of potential buyers. Many of our clients tell us of the palpable sense of disappointment they encounter when they tell assiduous purchasers of our involvement. The day they are pleased is the day I pack up.
In the last month, a business owner told me how one particular buyer he had been engaging with had categorically assured him that, if IMAS were involved, they would not proceed. I had to laugh, as that very same buyer had called me literally the week before to complain we had not invited him into one of our sales processes. Whilst many buyers say they won’t participate in an auction, many of them would hate to miss the opportunity to pursue an attractive business.
Other similar comments by buyers include “we can do it all in three months” and “the due diligence will be light touch”. By the time the reality becomes evident, the seller has lost their negotiating power and feels they are in too deep to pull out or explore a transaction with an alternative buyer. As the saying goes, marry in haste, repent at leisure.
If there is only one real buyer for your business, it is typically a tactical mistake to try to create an auction; in doing so, you risk highlighting the paucity of purchasers to the one good buyer. But in current market conditions, if a buyer says he or she will not become involved in a competitive auction process, the truth is that they know their offer is second best.
If you’re a business owner looking to explore exit options or simply want to find out more about the market, please do not hesitate to contact us on the numbers below.
Insurance
October marked the busiest month for UK insurance M&A since the first quarter of 2021, when a flurry of transactions announced prior to the March Budget saw the volume of announced transactions spike. Indeed, excluding that spike, the last month has seen more transactions announced than in any other month since before the outbreak of Covid, with 21 new deals to report on.
The most headline-grabbing transaction last month was of course the surprise announcement that commercial broking consolidator Aston Lark is to be acquired by Howden in a c.£1.1bn deal that comes just over two years since Goldman Sachs Merchant Banking Division invested in Aston Lark. The reported high-teens valuation multiple will do nothing to dampen the enthusiasm of the various sector consolidators – Aston Lark has kept itself busy making acquisitions (25 in 2021 alone) at somewhat lower multiples; its owners have done very well in selling those entities’ earnings on to Howden at a substantially higher valuation.
Staying on the subject of eye-watering valuations, in another major deal in the month it was announced that Nordic PE firm EQT Partners will make a significant investment, alongside existing investor Vitruvian Partners, in CFC, the fast-growing MGA best known for its leadership in the cyber market. The transaction is reported to value CFC at more than £2.5bn.
There were two other MGA deals announced in October, with one being that Munich Re-owned HSB Engineering Insurance will acquire the MD Group of companies, the structural warranties specialist behind the Premier Guarantee and LABC Warranty brands, and Space and Energy specialist Occam Underwriting has acquired Beech Underwriting, an underwriting agency based in Kent and best known for its Terrorism cover.
In commercial broking, there was the usual slew of new deals, with both dedicated consolidators and a number of less frequent, privately held businesses making new acquisitions. Starting with the consolidators, Howden-owned A-Plan announced the acquisition of Watkin Davies Insurance Consultants in Wales, Global Risk Partners announced it had taken a minority stake in All Med Pro, a member of the Hedron Network that GRP acquired from Marsh UK earlier this year, the aforementioned Aston Lark added both Absolute Products in Leighton Buzzard and Bainbridge Collins in Birmingham, and US consolidator NFP acquired KGJ Insurance Services, a commercial broker based in Wolverhampton.
In other commercial broking deals, Welsh broker Thomas Carroll acquired Delywn Griffiths Insurance in Cardigan, Inflexion-backed Radius Insurance Solutions acquired taxi and courier specialist Milestone Insurance Consultants in Leeds, Irevolution Group (whose brands include Well Dunn Insurance Services) acquired motor broker BG Insurance (a trading style of Barry Grainger), Chester-based Daulby Read acquired agricultural specialist Hornby Snape Insurance Services in Macclesfield, and UKGlobal Leeds (part of UKGlobal Broking) acquired Linton Greenwood Insurance Brokers in West Yorkshire.
In the Lloyd’s market, Lockton announced that it had acquired international marine broker Edge Group, and insurer IQUW (née ERS) completed the acquisition of Agora Syndicate Holdings, which provides underwriting services to syndicate 3268.
In personal lines, it was reported that US PE firm Aquiline Capital Partners, which specialises in insurance and technology investments, and which has previously invested in SimplyBusiness and ERS in the UK, will take a majority stake in Ripe Thinking, and that specialist motor insurer Granite Group has agreed to acquire Carrot Insurance, the telematics broker, from Trak Global.
Finally, there were a number of notable transactions on the services side of the sector. Acquisitive loss adjuster QuestGates completed its fourth deal of 2021 with the acquisition of contingency specialist Focus Claim & Risk Management, FTSE 250 boiler repairer HomeServe acquired home emergency assistance outsourcing firm CET Structures, and beleaguered services group Capita plc divested its Capita Commercial Insurance Services (CCIS) and Capita Managing Agency (CMA) businesses to Marco Capital, the Maltese run-off specialist.
Investment
abrdn (formerly Standard Life Aberdeen) acquired a retail investing content platform Finimize for an undisclosed sum.
In the asset management sector, Schroders announced the acquisition of River and Mercantile’s UK fiduciary management and derivatives business for £230m. The transaction will boost Schroder’s assets by £42bn. Cardano Group agreed to acquire ACTIAM, a Dutch sustainable investment manager, and Edmond de Rothschild acquired a 42.5% stake in London-headquartered family office Hottinger Group.
In the IFA sector, the national consolidator Fairstone bought Chadney Bulgin, adding over £850m of assets and 11,000 wealth and mortgage clients. Copper Street Capital put capital behind One Four Nine Group, a new financial advice and wealth management firm run by Matthew Bugden, which launched with the acquisitions of Charter Financial Planning and Rice Whatmough Crozier with over £300m of client assets. US-based private equity investor Further Global Capital Management purchased a majority stake in financial adviser and tax firm Progeny, and national wealth management firm Independent Wealth Planners acquired Yorkshire-based financial planning firm Acuity Wealth Management which looks after 228 clients with £85m of assets. Finally, two ex-Quilter executives, Dominic Rose and Nigel Speirs, bought MKC Wealth with the backing from Cabot Square Capital.
Lending
In the banking market, Hampshire Trust Bank announced that it had agreed to acquire Wesleyan Bank from Wesleyan Assurance Society, subject to regulatory approval. Augmentum Fintech announced that it was making a further £10m investment into digital bank Zopa as part of Zopa’s latest £220m funding round which was being led by Softbank Vision Fund 2 alongside other existing investors IAG Silverstripe, Northzone, and Davidson Kempner Capital Management. The Co-operative Bank confirmed that it had approached Banco de Sabadell regarding a potential acquisition of TSB but that no discussions were currently taking place. Following the receipt of certain expressions of interest in Sainsbury’s Bank, J Sainsbury announced that it had concluded that they do not offer better value for shareholders than retention of the bank and accordingly all such discussions had now ended.
In the debt purchase market, Sherwood Acquisitions, a newly formed company owned by investment funds managed by TDR Capital, announced it had completed the acquisition of Arrow Global Group’s entire issued, and to be issued, ordinary share capital for £565m. Copper Street Capital announced that its portfolio company Lantern had agreed terms to acquire Sonex Financial which provides specialist services to vulnerable customers in arrears.
Elsewhere, digital equity loan provider Proportunity was reported to have raised new debt and equity funding of c. £105m led by VentureFriends, Kibo Ventures and existing investors Anthemis, Entrepreneur First and Amro Partners. Having acquired 40% of The Business Lending Exchange (BLX) in 2018, Manx Financial Group announced that its wholly owned subsidiary Bradburn had exercised its option to acquire BLX’s remaining issued share capital for c. £0.9m in cash plus an additional potential earn-out of up to c. £0.5m.
Still waiting for the Covid Recovery
In the eleven quarters to have elapsed since the beginning of 2019 it will come as no surprise that the UK saw the lowest level of deals during the quarter in which Covid first really hit the country. Even taking account of the mini M&A “boom” that occurred in Q1 of this year, driven largely by a fear that the Chancellor would raise Capital Gains Tax in March, post Covid levels of M&A are still some 20% lower than pre-Covid levels. Whilst Q3 this year was up on Q2, it is still too early to call a return to pre Covid levels of M&A activity.
Looking on a sector-by-sector basis, M&A activity in the Investment sector has remained remarkably consistent. Q2 2020 activity was only 17% lower than the average of the preceding five quarters, and the M&A “boom” in Q1 2021 was only 20% above the pre Covid level of activity.
Contrast that with the Insurance sector. Q2 2020 saw M&A almost grind to a complete standstill. The threat of increased Capital Gains Tax saw many insurance brokers rush for the door in Q1 2021, with the 41 transactions in the period being almost three times the average quarterly number since the beginning of 2019.
We have seen the volume of Lending sector M&A deals fall away sharply in recent quarters. The reasons for this are not readily apparent, but it is worth noting that there is significant and heightened regulatory risk around some segments of the personal lending sector, principally around interest rate capping. In the commercial segment, the Government’s recent interventions to support companies through e.g. CBILs, will have been hugely disruptive for the sector. Such uncertainty is rarely supportive of a buoyant market for M&A.
If you want to keep ahead rather than behind a trend, we would be delighted to meet and explore how we can assist you in furthering your value creation goals.
Insurance
September finished what has been a relatively muted summer and indeed quarter for UK Insurance M&A, with only eight new transactions being announced.
In broking, Butterworth Spengler, part of the Synova-backed consolidator JM Glendinning Insurance Brokers, announced that it had supported a management buyout of Brunsdon Insurance Brokers in Gloucester, PIB Group announced the acquisition of JRT Insurance Brokers, an independent commercial broker headquartered in Nottingham, serial acquirer Aston Lark announced the acquisition of S. Johnson & Co. a commercial broker in Birmingham with particular specialisms in the music industry and the gun trade, and Ardonagh-owned Ethos Broking added a new ‘hub’ business in Yorkshire with the acquisition of Leeds-based Schofield Insurance Brokers.
In underwriting, legal indemnity specialist Guaranteed Conveyancing Solutions (trading as GCS Title Insurance) was sold to First Title, part of the US-based First American Corporation, and leading Professional Indemnity specialist Manchester Underwriting Management was acquired by Arthur J. Gallagher, where the MGA will become part of the latter’s Pen Underwriting division.
In a major transaction in Insurance Services, BC Partners-backed Davies Group announced that it had acquired Asta Capital, the third party managing agency known for its development of the Lloyd’s Syndicate-in-a-box (SIAB) framework.
Finally, tech-led property insurance provider Avantia, better known as HomeProtect, announced that its PE sponsor ECI Partners, whose ECI Fund 9 had backed the MBO of the business in 2014, had sold the business to … wait for it … ECI Fund 11, its latest buyout fund.
Investment
Wealth management continues to be an area of very high levels of M&A activity with well over £4.6bn worth of deals in the last quarter, the highest in three years. This was largely accounted for by the fast-growing group True Potential announcing the sale of a majority stake to private equity firm Cinven in a deal that could be valued up to £2.5bn.
Sanlam UK agreed to sell its wealth management business to Oaktree Capital Management for £140m. This follows an earlier announcement that the South African financial services group was divesting its life insurance book to Chesnara for £39m. Both transactions will simplify Sanlam’s operations in the UK and free up capital for its expansion plans in Africa and India.
The investment management sector saw Gresham House buying the venture capital trust business of Mobeus Equity Partners for £36.1m and the UK multi-family office, Alvarium Investments, merging with US advice firm Tiedemann Advisors. Goldman Sachs’ private equity investment business Petershill Partners achieved a £4bn valuation via an initial public offering on the London Stock Exchange raising £1.2bn.
In the IFA sector, Independent Wealth Planners bought Southampton-based Encompass Financial Management, adding £165m in AUA and 458 clients. Saltus Group acquired Farnham-based Fish Financial as part of its long-term growth strategy to expand its financial planning arm, bringing £300m of client assets. South African wealth manager Alpha Wealth bought a majority stake in London-based advice firm Holborn Financial, adding c.£150m in client assets. National advice group Socium, backed by private equity firm Penta Capital, completed a string of acquisitions having acquired financial planning firms True Bearing, Scrutton Bland Financial Services and Wealth Solutions.
Elsewhere in the sector, pensions consultancy Isio agreed to acquire Premier Pensions for an undisclosed sum and corporate broker Peel Hunt raised £112m in its initial public offering debut on the AIM segment of the London Stock Exchange.
Lending
City of London Group announced the sale of Milton Homes to Max Barney Investments for £9.3m and separately announced the completion of its previously announced capital raising to meet the capital requirements for the PRA to remove deposit restrictions from its subsidiary Recognise Bank.
In the development finance market, funds advised by Avenue Capital Group completed the acquisition of a majority shareholding in Zorin Finance from Alternative Credit Investments and Sir John Beckwith and family.
In the fintech market, Koyo raised £36m in a mixture of debt and equity capital as part of its Series A fundraise in order to fund its growth plans in the near-prime consumer credit market. The equity round was led by Force Over Mass with participation from existing investors Forward Partners, Frontline Ventures and Seedcamp. SME lending broker Capitalise raised £10m from Experian, QED Investors, Gauss Ventures, Hambro Perks and Post Finance.
Elsewhere, Arbuthnot Banking Group announced in two separate transactions the further sell-down of its shareholding in Secure Trust Bank, raising gross proceeds of c. £5.0m and resulting in a residual shareholding of c. 2.14 per cent.
One of the questions we are most often asked is “is it the right time to sell my business?”. My half serious response is always that if I knew the answer to this question, I would not be doing this job. But it is an important answer, so deserves a considered response.
Individual owners of quoted equities can typically sell within minutes of taking the decision to do so, in all but the direst market conditions. Owners of private businesses are in a very different position. Decide to sell today and – in more cases than not – the process can take more than six months. Transactions discussed in this August newsletter reflect, in most cases, decisions by owners taken in perhaps Q4 2020 or Q1 2021.
We also impress on our clients that the start of any sales process is the decision to explore a possible sale; the final decision to sell is ultimately taken only when one is ready to put pen to paper and starts signing the various documents involved. To do a good deal, one has to be prepared to walk away from a deal; even right at the end. Until the documents are signed it is typically best to continue to run the business as if no sale is anticipated, thus ensuring one can walk away from a transaction right up to the last moment.
Whilst there are certainly bad times to sell a business, the right time to sell a business – based on financial considerations – is less absolute. Financial services businesses are currently attracting premium prices, but so are other assets. Equities and houses are all considerably more expensive than they were, say, five years ago, and turning up at the bank to deposit your sale proceeds at current deposit rates is not something that will excite everyone.
We continue to believe that the right time to sell your business should be a decision driven by mainly operational and personal factors. Our involvement and understanding of the buyers ensures that our clients embark on that process fully prepared, with the greatest chance of optimising the outcome in a manner that will deliver their personal objectives.
Insurance
Perhaps unsurprisingly given the summer lull, August was a relatively quiet month for Insurance sector M&A, with ten new deals recorded.
Two of the transactions in the month were by Aston Lark, which announced the acquisitions of commercial broker Plester Group in Worcestershire, and Essex Insurance Brokers in, erm, Essex. The latter has a particular specialism in the film and visual arts sector, where Aston Lark is already a prominent player. With more than a dozen UK acquisitions already announced in 2021, Aston Lark has been the busiest acquirer in the UK market in terms of number of deals announced this year, ahead of GRP, PIB and Ardonagh, albeit a number of the other consolidators have spent more on M&A in 2021 by doing larger deals.
There were also two new acquisitions by DR&P, which has acquired both Stockport-based commercial broker JJ Yates and Cumbria Insurance Brokers in Carlisle. Having also made two acquisitions in July, DR&P has had a busy summer and got off to a flying start under new private equity backer Inflexion, which invested in the business in March.
Lastly among the consolidators, Global Risk Partners – through its South West hub business Higos Insurance – announced that it had acquired Web Shaw (trading as Jacksons Insurance) in Penzance, and PIB Group announced that it has acquired Simply Insurance Services, a motor broker based in Purfleet.
In personal lines, travel provider InsureandGo was divested by Spanish insurer Mapfre and has been acquired by AllClear, the specialist travel broker backed by Synova. And in another headline grabbing deal, Right Choice Holdings announced it had agreed to acquire online SME broker Moorhouse, better known by its trading name constructaquote.com.
Finally, Talbot Jones Risk Solutions, the family-run commercial broker based in Gateshead, announced that it had acquired March Insurance Services in North West Wales, and Blythin & Brown Insurance Brokers, an independent broker in Leicestershire, underwent a management buyout (MBO).
Investment
In the asset management sector, Goldman Sachs Asset Management announced the purchase of Netherlands-based specialist ESG asset manager NN Investment Partners for £1.3bn, adding approximately $355bn in client assets. BT Pension Scheme agreed a £115m deal to sell its remaining 29.5% stake in Hermes Fund Managers Limited to US-based Federated Hermes. M&G reached a deal to acquire the Huddersfield-based financial planning group, Sandringham Financial Partners, which looks after more than £2.5bn in AUA.
More deals were agreed with IFAs as the consolidation in the sector continued. Ascot Lloyd acquired Aberdeen-based Central Investment Services, adding £761m in AUA, while Mattioli Woods acquired Richings Financial Management with £70m of AUA for £1.8m. Tenet added £100m in AUA by acquiring Leeds-based Astute Financial Advisers. Perspective Financial Group bought Wiltshire-based Avon Financial Advisers which has £42m in client assets. Wealth manager Courtiers acquired South West-based Davidsons IFA with £120m in AUA. Bristol-based Aspirations Financial Planning added £30m in AUA by acquiring Batcombe Financial Services and Clifton Asset Management completed the acquisition of Portsmouth-based financial adviser Leonard Gold.
Among the larger IFA groups, True Potential confirmed it is considering offers for the company, but denied it has put itself up for sale. It comes after rumours that the company was in discussions with several buyers, including a company linked to Bernard Arnault, the chief executive of luxury goods company LVMH. Cheltenham-based Attivo Group stated that it will consider listing in a couple of years’ time as it continues to pursue growth, having set out an ambition of reaching £5bn of assets by the end of its current financial year.
Elsewhere in the sector, Swiss-based LGT Group, which has large presence in the UK, acquired a minority stake in Berlin-based digital wealth manager LIQID, which looks after $1.7bn in AUM. Socium Group acquired a “significant controlling stake” in London-based mortgage broker Charles Cameron & Associates. Sanlam announced the winding down of its Partnerships network business and is currently working with three other networks to help firms find a new home. River and Mercantile received a number of offers from businesses looking to acquire its fiduciary division, known as Solutions. Online retail investment platform Interactive Investor is preparing for an IPO that could value the business at £2bn. Frenkel Topping acquired legal costs consultancy Bidwell Henderson Costs Consultants in a deal valued at £1.48m.
Lending
It was the typically quiet summer month in terms of the lending M&A markets.
City of London Group announced a capital raise of £11.4m through a share subscription and a raise of up to £6.9m through an open share offer, and announced it was in the process of disposing of its interest in Milton Homes: both the capital raise and the expected sale were undertaken to support the growth of its subsidiary Recognise Bank.
Following the announcement earlier in the year by Provident Financial that it intended to place its home credit business into managed run-off or to consider a disposal, the company confirmed that the managed run-off of the business was expected to be completed by 2022.
In the neo bank market: Bank North closed a £20m Series A funding round, raising new capital from investors including LHV Group, Skipton Building Society, Channel 4 Ventures and Greater Manchester Combined Authority; and Kroo announced a £17.7m Series A funding round led by Karlani Capital.
Business owners frequently ask us “what multiple of income is my business worth?”, or perhaps “what percentage of assets under management could I get for my business?”. With some exceptions around lending business and insurance risk carriers, our response is typically an admittedly somewhat convoluted explanation that valuations are principally earnings driven (or EBITDA to be more precise, which is itself largely a proxy for free cash generation), before going on to discuss the need to “normalise” these numbers and establish a view on the quality and sustainability of earnings. We explain that what matters most to buyers is future earnings and not the past, but that past earnings are usually the strongest piece of evidence in establishing what the future earnings might look like. And of course, it is the earnings in the hands of the buyer that really matters, a number which (typically) a seller will never fully understand. Added to this is a discussion around “debt free/cash free” and working and regulatory capital.
Generally, this is well understood, yet buyers and sellers will still routinely talk about multiples of income. In early stage businesses this is understandable, as they have not yet built up a track record of historic profits. In more mature businesses it is generally more of a shorthand, as with an understanding of growth and margins they can provide a reasonable guide as to what an earnings-based valuation might look like.
The actual EBITDA used in arriving at a valuation for M&A purposes often bears little resemblance to what appears in the statutory accounts. Conversely, revenue is a far firmer number and so expressing an offer value as a multiple of revenue can eliminate the vagaries of EBITDA multiples; in a breakeven business the EBITDA multiple would be infinite.
But when multiples of income are talked about, it can engender the belief that growing the top line – but not the bottom line – will automatically enhance value. The reality is that creating a sustainable high margin business is tough, remorseless work, requiring every aspect of a business to be kept constantly under the microscope. In my experience, successfully achieving high margins can often come down to the willingness to “weed out” unprofitable customers/clients, or charge them more for services or, better still, not take them on in the first place. Businesses that do this invariably have strong pipelines, understand their cost structures and are not blindly chasing turnover. An added benefit is that the less sophisticated competitors are often picking up the lower quality business that has been left behind, tying up significant resources.
Reinforcing the above point, not every £ of profit is worth the same. Buyers do not look to share their synergies with sellers. But a well-managed sales process will force sellers to factor them in to the offer price, in order to be able to table a winning bid. Therefore a £ profit arising from having inherently profitable clients and well-honed processes is more valuable than a £ profit that comes from an industry beating commission rate.
Our involvement will ensure you will benefit from the majority of synergies deriving from the transaction, but we subscribe fully to the old adage that turnover is vanity, profits are sanity (and cash is reality).
Insurance
While the biggest insurance news story in the month concerned an announced transaction that now isn’t going to take place, there was still plenty of UK Insurance M&A activity during July, with 14 transactions being announced, more than twice the number in the same month last year.
The most active acquirer in the month was Global Risk Partners, with (directly and through its owned businesses) three transactions. Prior to the announcement that Aon and Willis had withdrawn plans to merge, GRP announced the acquisition of Willis Towers Watson’s Northern Irish commercial risk and broking business, a £57m GWP portfolio that will be integrated into GRP’s Belfast-based ABL business. GRP also announced that it would acquire Bolton-based High Net Worth specialist Three Sixty Insure, and commercial broker Real Insurance in Mansfield, through its subsidiaries Gauntlet Insurance Services and DCJ Insurance, respectively.
Other consolidators were also active during July, with PIB Group deepening its presence in the let property and tenant referencing market – it acquired market leader Barbon in 2020 – by adding lettings platform Rent4sure. And DR&P Group, the commercial broker backed by Inflexion following a buyout earlier this year, made two new acquisitions, D2 Corporate Solutions, a corporate broker with offices in Glasgow and Manchester, and Smith Robinson, a Chartered broker based in West Yorkshire.
In a somewhat bizarre coincidence, there were two deals in the month for golf-related insurance businesses. Aston Lark announced that it had acquired the Linkscover brand, a golf club insurance specialist providing cover for some of the UK’s best-known clubs. In the same week Lloyd’s coverholder WorldWide Hole ‘N One, a contingency specialist providing cover for, among other things, hole-in-one and associated prizes, was acquired by US-based wholesaler Jencap Group.
In other broking deals, travel specialist Staysure announced that it had acquired ROCK Insurance Group, a travel and gadget business with a strong presence in the affinity partnership segment, Tasker Insurance – whose acquisition by Jensten Group was included in last month’s newsletter – announced that it had acquired Insure Risk, a small commercial broker based in Altrincham, and Character Insurance Brokers acquired both Boothby Taylor in Chelmsford and Kingfisher Insurance Brokers in Westerham.
In insurtech, it was announced that Setoo, an MGA providing a platform for embedded travel and leisure products, had agreed to merge with Pattern Insurance Services, a US startup specialising in parametric insurance. Finally, acquisitive MGA and insurer Accelerant acquired The Underwriting Specialist, a Lloyd’s coverholder based in Hertfordshire and focusing on PI cover.
Investment
July saw two more transactions in the investment platform space, with Lloyds Banking Group acquiring Embark Group for £390m, adding £35bn of assets under administration, and AssetCo striking a £28m deal for a 30% stake in Parmenion Capital Partners. In addition, Australian Praemium was reported to be looking for a buyer for its international business, which includes its UK platform and customer management systems Plum and Wealthcraft.
Consolidation continued among IFAs. Palatine Private Equity exchanged contracts for the sale of Wren Sterling to the management team supported by investment funds affiliated with Lightyear Capital, which is making a majority investment in the firm that is currently managing c. £4.6bn in AUA. Imagine Financial Planning and Forbes Lawson Wealth Management joined Fairstone through its DBO acquisition programme, bringing together combined AUA of around £200m. Close Brothers acquired PMN Financial Management, adding £300m in AUA. Perspective Financial added £350m in AUA via the acquisition of Prolific Financial Services, Evolve Financial Management, Bowman Financial Planning and Quantum Portfolio Management, whilst Team plc announced the acquisition of JCAP Treasury Services for £2.95m.
In the wealth management sector, US investment bank Raymond James made a recommended offer for LSE-listed Charles Stanley for £278.9m. Stonehage Fleming acquired Maitland Group’s private client division, adding £1bn in AUM and £15bn in assets under administration. Bank of Ireland acquired most of the country’s largest independent broker and wealth manager Davy Group for €440m, comprising its wealth management, capital markets and asset management divisions. Separately, Luxembourg-based investor services group IQ-EQ reached an agreement to buy Davy’s Global Fund Management business and Sanlam was reported to have put its UK wealth and insurance businesses up for sale.
Elsewhere in the sector, AssetCo announced plans to raise £25m to acquire a majority shareholding in specialist tracker business Rize ETF. Tech-focused venture capital firm Forward Partners floated its shares on London’s AIM market with a market capitalisation of £134.6m, raising proceeds of £36.5m which it will use to fund future investments. Fintel, the parent company of SimplyBiz, sold its employee benefits platform Zest Technology to FPE Capital in a deal expected to be worth up to £11.5m. The specialist financial services consultancy and systems provider Altus was acquired by Canadian software company Equisoft for an undisclosed sum. Australian technology provider Iress was reported to be in sale talks with private equity firm EQT Fund Management.
Lending
There was significant M&A activity within the mortgage market. Starling Bank announced the acquisition of Fleet Mortgages, a specialist buy-to-let mortgage lender, in a £50m cash and share deal. Athene, a New York listed financial services company focused on retirement savings solutions, announced that it had entered into a definitive agreement to acquire Foundation Home Loans, a specialist mortgage lender, from funds managed by affiliates of Fortress Investment Group. Better, a digital home ownership platform in the US, announced its planned acquisition of Trussle, a digital mortgage broker, facilitating its entry in to the UK mortgage market. RVU, whose brands include Uswitch, Confused.com and Money.co.uk, announced its acquisition of Mojo Mortgages. Lonsdale Capital Partners announced the sale of Charles Cameron & Associates to Socium Group. Foxtons Group confirmed that it was reviewing strategic options for Alexander Hall Associates.
Secure Trust Bank announced two transactions in line with its strategy to focus on specialist higher-yielding lending segments: the sale of its remaining portfolio of SME asset finance agreements and equipment to Haydock Finance; and the sale of a portfolio of mortgage loans to Jacqali Designated Activity, a financing vehicle established by a global financial institution. The consideration for the sale is estimated at £54.6m, payable in cash on completion.
Elsewhere, UK Government Investments announced its intention to sell some of HM Treasury’s shares in NatWest Group through a 12-month trading plan, capped at 15% of the aggregate total trading volume in the company.
Since the beginning of 2020, the number of announced deals in the UK valued at more than £5m in the General Insurance and the Investment sectors has been very similar at 107 and 102, respectively. The Lending sector has seen some 50 deals over the same period.
However, the population of entities in the General Insurance sector is only about a third of the size of the Investment sector, suggesting the rate of consolidation have been much higher in the former. This is exemplified by the recent merger (subject to regulatory approval) of Aon and Willis, the World’s No2 and No3 brokers, respectively.
Also, the Investment sector has had a more stable quarterly volumes of deals (ranging from 12 to 22) whereas the General Insurance sector has seen volumes as low as five in Q2 2020 to a peak of 41 in Q1 2021, when owners rushed to complete their sales before the anticipated increase in the rate of capital gains tax.
Whilst the two sectors are undergoing intense consolidation, much of it is not visible in the chart above, especially in the IFA market which remains hugely fragmented and the value of many transactions are below £5m. Hence, what the data reflect is M&A activity driven more by strategic buyers and private equity investors (and businesses they back), as well as a growing involvement by institutional investors seen in the successes of recent Stock Exchange flotations. Investors’ appetite has grown strongly as it has become apparent that Covid is not adversely affecting the industry, making ample amounts of capital available to acquire from tax-driven sellers seeking to hurry to the exit to vendors seeking to take advantage of the strong liquidity.
We rigorously carry out detailed research of the market to ensure our clients are provided with the fullest range of accurate information and options to improve their decision-making. If you would like to tap into our insights, please do not hesitate to call us here at IMAS.
Insurance
June was another relatively quiet month for UK M&A in the Insurance segment, albeit the last week of the month (and first few days of July, which we include here) saw a couple of notable transactions being announced.
As ever, most of the M&A activity was driven by the private equity backed consolidators. And not for the first time, Aston Lark was the most active of the buyers, announcing that it had acquired Bolton-based Premier Insurance Consultants, a commercial insurance broker with a particular expertise in the concrete industry, in its fifteenth deal of 2021 so far. A few weeks later Aston Lark increased that number to sixteen, acquiring specialist wholesale business ES Risks.
We have commented here in the past that as the number of mid-sized commercial brokers reduces, the consolidators will no longer be able to focus solely on this segment when looking for acquisition targets. We have suggested that two responses to this might be both intra-consolidator M&A and acquisitions being made for targets in tangential business areas. There was evidence of both of these trends during June, with the announcement that Livingbridge-backed Jensten Group (née Coversure) has acquired Tasker Insurance Group, and the acquisition of Kudos Liability Adjusters, a liability loss adjusting business with four offices, by Phil Barton’s Partners&.
Finally among the consolidators, Synova-backed J.M. Glendinning Group announced its third deal of 2021 and its first in the South of England, acquiring Bickley Insurance and adding 8 new insurance professionals to the group, and ECI-backed Clear Group acquired Anderson White Insurance Brokers, also its third deal of the year.
In other broking transactions, Playle Russell (Special Risks) – a broker specialising in cover for bookSellers and thatched property – was acquired by Willis Insurance & Risk Management, the Northern Irish broking group, in its second deal of 2021, and Durham-based Castle Insurance Services acquired Pounder Insurance Services in Seaham.
There was also M&A in the MGA segment, with Brightside’s MGA Kitsune being sold to Irish motor broker XS Direct. Perhaps more notable however was the announcement that Arch Reinsurance is to acquire Arron Banks’ Somerset Bridge Insurance Group, which includes its motor MGA, direct and aggregator distribution, affiliated insurer, and claims operations. Somerset Bridge includes the brands GoSkippy and Vavista.
Investment
JPMorgan Chase entered into an agreement to acquire robo-adviser Nutmeg, allegedly for £700m, in a strategic move to launch its digital banking and investment proposition in the UK later this year. Rathbone Brothers strengthened its financial planning capability with the acquisition of London-based advice firm Saunderson House for £150m. The transaction will more than triple the number of financial planners at Rathbones from 25 to 80 and add an additional £4.7bn of client assets to the group.
Titan Wealth Holdings, a newly created holding company led by James Kaberry and Andrew Fearon who are being backed by funds managed by Ares Management, Maven Capital Partners and Hambleden Capital, announced it had agreed to acquire Tavistock Wealth, Tavistock Investments’s multi-asset manager with over £1bn of AUM, for consideration of up to £40m. Soon after, Tavistock Investments acquired Cambridge-based financial planning business Chater Allan Financial Services with £110m of assets under advice. Titan Wealth Holdings also announced it had acquired GPP, a platform with £2bn of AUA that provides a suite of execution, settlement and custody services to Titan Wealth Holdings in addition to its institutional clearing and custody business.
There was further consolidation among IFAs. Wren Sterling acquired Sentinel Private Clients in Warwickshire, Bookkeeping Administration Services in Cardiff and Rothesay Intelligent Financial Services in Bedfordshire, adding £294m of assets and c. 550 new clients across all three transactions. Independent Wealth Planners bought Omnium Capital in Surrey, adding 750 clients with £250m of assets. AIM-listed Kingswood acquired Admiral Wealth Management in North Lincolnshire, Fairstone partnered with James Ryan Thornhill under its DBO programme and Garbutt & Elliott Wealth Management bought local Yorkshire financial planning business HKA FS.
The public markets proved their allure to private equity firm Bridgepoint, which announced plans to list on the London Stock Exchange to raise £300m for the sale of new shares to support its growth and a further £200m for existing shareholders, valuing the company at £2bn. Similarly, it was reported that True Potential, the platform, network and wealth management provider, tabled plans for a potential $2bn listing in the US via a merger with a Special Purpose Acquisition Company (SPAC), after having had discussions with Lloyds Banking Group, Franklin Templeton and Cinven about a sale of the group.
Elsewhere in the sector, Vontobel acquired the remaining 40% stake in TwentyFour Asset Management and it was also reported that Phoenix Group had terminated discussions to sell its European business as the deal would not maximise shareholder value.
Lending
In a relatively quiet month, Metro Bank announced the disposal of the RateSetter car dealer finance loan portfolio to LE Capital UK. The portfolio had an aggregate book value of £15m and formed a non-core part of the RateSetter back book that was recently acquired. Funding Circle Holdings announced the sale of SME loans in its two US warehouses to an asset manager for c. £63m.
Manx Financial Group announced two small transactions: the acquisition of a 10% shareholding in Rivers Finance Group, allotted at no cost to its wholly owned subsidiary Bradburn which has also been granted warrants to acquire a further 10%; and the acquisition of a further 15% shareholding in Beer Swaps, trading as Ninkasi Rentals and Finance, for £0.3m taking its total shareholding to 90%.
Elsewhere, Augmentum Fintech announced a proposed issue of new ordinary shares to raise gross proceeds of £40m to take advantage of its identified pipeline of fintech opportunities in the UK and wider Europe.
People’s regular consumption of financial services is often buying insurance protection. Last week the FCA announced insurers will be required to offer the same terms to existing policy holders as new ones, to stop the common practice of discounting prices for new customers and progressively increase prices for customers who remain loyal.
The payment protection insurance (PPI) scandal demonstrates an important point. Bad practice can crowd out good practice. PPI made so much money for the banks that they could discount the cost of mortgages and thereby forcing other mortgage providers to follow suit. The subsequent intervention by the regulator has arguably helped ensure that good practice can compete effectively.
Regulations have other less obvious impacts which benefit business owners. This may seem counterintuitive given the costs involved. But as all providers are covered by the same requirements these costs are passed onto customers and increasing regulatory requirements raise the barriers to entry. This has retained value in established businesses and driven increasing values of many sectors of UK financial services.
Rising capital values bring benefits. A business growing in value is a more attractive investment proposition which, in itself, can contribute to additional investment in the business to perpetuate its further growth. As an example, there was historically a reluctance to invest in developing professionals in the industry as, once developed, the mobility of the professionals posed a risk of migrating business away from the sponsor. The exam regime imposed upon the industry has partially provided a solution to this structural (free rider) issue.
Business owners and senior managers generally (not forgetting M&A advisers such as ourselves), may be surprised to realise the benefits that regulation has conferred on them.
Insurance
Following a subdued April, May marked another relatively quiet month for insurance sector M&A in terms of deal volumes, albeit one that was high in terms of transaction value owing to two major transactions announced during the period.
The most active purchaser during the month was Seventeen Group, which announced a hat-trick of transactions within a matter of days. The group acquired Ipswich-based commercial broker Ryan Insurance Group, construction specialist Pinner Risk Solutions (PRS), and Christopher Rowe Insurance Brokers, the Cornish broker best known for its expertise in marine business. Both PRS and Ryan’s will become part of Seventeen’s subsidiary James Hallam.
Other commercial broking transactions included the acquisition of South West-based W H Adams & Co (trading as Town & Country) by Partners&, Howden’s acquisition of medical specialist Medical Professional Risk Solutions (MPRS), and the acquisition by Ardonagh – via Ethos Broking hub business Hugh J Boswell – of Drayton Insurance in East Anglia.
In personal lines, LDC-backed Right Choice made its second acquisition in as many months with the previously trailed acquisition of motorcycle specialist Bennetts, which was divested by Ardonagh following the well-publicised concerns raised by the Competition & Markets Authority over Ardonagh’s ownership.
In a major sector transaction, Ardonagh announced that it had agreed to acquire the insurance brokerage operations of BGC Partners in a $500m deal. The target business, collectively branded as Corant Global, comprises global wholesale and specialty re/insurance broker Ed and Lloyd’s broker Besso, as well as aviation specialist Piiq Risk Partners, MGA Globe Underwriting, and a number of overseas businesses (marine broker Junge in Germany, Epsilon Underwriting in Australia, and European MGA Cooper Gay).
In the other major transaction in the month – although not strictly a UK deal – Arthur J Gallagher announced that it had reached an agreement to acquire certain reinsurance, specialty and retail operations of Willis Towers Watson in a $3bn transaction. The divestment by WTW forms part of a regulatory remedy coming out of the pending combination between Aon and Willis that is expected to close later this year.
Finally, Accelerant Insurance, the carrier backed by Altamont Capital Partners that has been active in acquiring MGA businesses, for whom it provides continued underwriting support, announced that it had acquired Kinnell Holdings, a vertically integrated insurance group serving the UK building and remedial treatment industries.
Investment
The wealth management sector continued to be very active with Mattioli Woods announcing two acquisitions worth a total of £143.5m and a £110m equity placing to help finance them. It agreed to buy the private equity investor and alternative asset manager Maven Capital Partners for up to £100m and the North West-based financial planning business Ludlow Wealth Management for up to £43.5m, the two largest acquisitions by the group to date.
Elsewhere in the wealth management sector, the FCA approved the acquisition of AFH Financial Group by funds managed by the US-based private equity firm Flexpoint Ford in a deal worth £231.6m. Swiss financial services firm VZ Group acquired a 50.1% stake in St Albans-based Lumin Wealth with the intention to gain full control within five years. Fidelius Group acquired the specialised advice to returning ex-pats business of deVere UK, adding 28 staff and £280m of client assets and Independent Wealth Planners bought Professional Wealth Management, adding £150m of client assets. Oberon Investments acquired London-based Smythe House with £40m of AUA, while IFA consolidator Fairstone completed the acquisition of Sterling Asset Management. Worthing-based Investment Solutions Wealth Management acquired Eastbourne-based Montgo Consulting, taking its total client assets to £600m.
In the asset management sector AssetCo acquired Edinburgh-based business Saracen Fund Managers and Savills Investment Management took full control in real estate debt manager DRC Capital for up to £65m.
In the other areas of the sector, Equiniti, the listed financial and administration services outsourcing group, agreed the terms of a recommended £673m offer by the US private equity firm Siris Capital. Wealth at Work, the specialist provider of workplace financial education, guidance and financial advice for individuals, saw a secondary private equity investment from Aquiline Capital Partners. Investment bank Raymond James agreed to acquire Cebile Capital, a provider of private placement and secondary market advisory services.
It was also reported that Lloyds Banking Group was in “advanced talks” to finalise a takeover of the pensions and investment platforms provider Embark Group and the life assurer Phoenix Group confirmed it was in “advanced discussions” for a potential sale of its European business to European Life Group Holding in a deal that could be worth around £550m.
Lending
In a relatively quiet month, Arrow Global Group announced that shareholders had passed the requisite resolutions to implement its recommended acquisition by Sherwood Acquisitions, a newly formed company owned by investment funds managed by TDR Capital. Completion of the transaction, which was announced at the end of March valuing the company at c. £563m, remains subject to regulatory approvals.
Provident Financial announced its withdrawal from the home credit market, citing changing industry and regulatory dynamics. The company intends to place its home credit business into managed run-off or to consider a disposal.
Elsewhere, Begbies Traynor Group announced the acquisition of finance broker MAF Property, trading as MAF Finance, for an initial consideration of £3.0m of which £1.0m is in new Begbies Traynor Group equity. In addition, there is a potential earn-out of up to £8.75m subject to delivering material growth in profits in the four years post-completion.
All that glistens is not gold
Last week I had a message on my phone from a client that ended “…remind me to tell you about the 10% coupon I get on my reinvestment; you would not get that from a bank!”
Private equity – directly or indirectly – is behind the majority of M&A transactions that are currently happening in UK financial services. In these deals, sellers are often encouraged/required to “reinvest” a substantial part of their proceeds, as a way of aligning interests. The coupon is rolled up and paid along with the principal when the acquirer exits.
Another of our clients received a glossy offer purporting to be worth 9 times EBITDA (plus various bells and whistles) but with a long-term pay-out worth 11 times. How so? At completion the cash consideration would be 5 times, with the other 4 times reinvested into loan notes and preference shares. If held for five years at 10% per annum it would equate to 50% of the principal amount, if not compounding. 4 becomes 6, added to the initial cash payment makes 11 times. Happy days?
Not exactly. What prospective recipients often fail to appreciate is that the coupon is only paid when the loan notes are redeemed. The redemption is often predicated on a successful exit in which any outstanding bank debt (typically used by the private equity fund to purchase the company in the first place) is first repaid from the sale proceeds, before the rolled-up loan notes.
UK financial services have enjoyed a good run. High returns have been achieved in private equity exits at increasing multiples and everybody has been happy. But at some stage the exit multiple arbitrage will come to an end. A vendor expecting a second helping larger than the first could well find the bowl empty.
The buoyant market conditions mean there is a lot of “funny money” washing around. Cleverly packaged in complex and opaque structures that mean the risk sellers are taking are not properly understood. Equity-levels of risk are dressed up to look like much safer debt instruments. There have been car crashes before, there will be again.
You only sell once and having somebody who can look under the bonnet and check the brakes before you climb into the passenger seat has to be a good investment.
Taking advice is not simply about maximising the upside, it is also about minimising the downside risks which buyers naturally skirt around. We are always happy to meet, to give you the balanced view so you have the information to make the right decision for you.
Insurance
Perhaps unsurprisingly given the flurry of deals announced in March and so timed to complete ahead of the Budget in that month, UK Insurance M&A volumes in April were rather more subdued, with only 7 announced transactions to report on.
Ardonagh, in a number of its guises, was the most active buyer, with three new acquisitions. Towergate announced it had acquired the assets of Swansea-based commercial broker Murton Alexander, Ethos Broking announced that it had acquired London-based broker Chambers & Newman, creating a 13th regional hub business, and retail unit Atlanta announced that it had purchased certain trade and assets from personal motor broker Be Wiser.
In other broking transactions, Aston Lark continued its recent run of acquisitions with a deal for motor trade specialist DNA Insurance, Partners& announced that it had acquired Nottingham-based commercial broker IFM Insurance Brokers (trading as Select), and independent Chartered broker Macbeth acquired Buckingham-based Peter Lole Insurance Brokers.
Finally, LDC-backed motor broker Right Choice Insurance Brokers (RCIB) announced that it had reached a deal to acquire the motor brands and customers of competitor Fresh Insurance Services Group, part of the Kingfisher (formerly Vantage) group of companies. Separately, there were press reports towards the end of the month reporting that RCIB had also reached an agreement to acquire Bennetts Motorcycling Services, the leading motorcycle insurance broker being divested by Ardonagh at the behest of the Competition and Markets Authority (CMA).
Investment
In the wealth management sector, Quilter announced the sale of its offshore business, with c. £22bn in AUM, to life assurance group Utmost Life and Pensions for around £483m, to focus on its higher growth UK wealth management business. Canaccord Genuity entered into an agreement with The Royal Bank of Scotland (part of NatWest Group) to buy the private client investment management business of Adam & Company for £54m. Private equity and infrastructure investment manager Foresight Group completed an equity investment into East Anglia-based Beckett Investment Management Group, which manages £775m in AUM.
The consolidation in the IFA sector continued apace. London-based Waverton Investment Management acquired £500m AUA Scottish wealth planner Cornerstone Asset Management. Progeny acquired Ayrshire-based Affinity, continuing its expansion in Scotland. IWP acquired three firms, Aberdeenshire-based Buchanan & Associates, Norfolk-based Moss and Roberts and Buckinghamshire-based Principal Financial Planning, which will collectively add £400m in AUA. Mattioli Woods acquired Pole Arnold Financial Management for up to £7m and Caledonia Asset Management for up to £1.6m, while IFA consolidator Fairstone Group acquired Dundee-based Findlay & Company Financial Services adding more than £100m in AUA. Octopus Group will invest £10m into Teddington-based financial coaching business Hatch Financial Coaching, to offer a combination of robo-advice and full financial planning. Fidelius Group acquired Bath-based Robson Taylor IFA adding £105m in AUA, and St. James’s Place Wealth Management’s appointed representatives Future Wealth Management and Frome-based Total Financial Wealth Management announced their merger, with the deal bringing the combined group’s AUA to £330m. Brunel Wealth acquired Bristol-based Academy Associates, adding £70m in AUA.
In the asset management sector, Paris-based asset manager Amundi entered into exclusive negotiations to acquire Lyxor’s (Societe Generale’s asset management arm) ETF business with £89bn AUM, and alternative asset management unit with £54bn AUM, for a total cash consideration of £710m. Ameriprise Financial’s subsidiary Columbia Threadneedle Investments agreed with BMO Financial Group to acquire BMO’s EMEA asset management business in a £615m all-cash transaction, which adds $124bn to the group’s European AUM and brings the firm’s total AUM to $1.2trn. Schroders purchased a 50.1% stake in Australian real estate lending company RF Eclipse as part of its plans to further expand its alternative offering.
Elsewhere, online pensions provider PensionBee floated on the growth segment of the London Stock Exchange, with a value of £365m on admission, raising £59.6m for the company. Employee benefits and pensions consulting business Broadstone Group acquired Midlands-based Quattro Pensions Consulting Actuaries to support its growth in the occupational pension schemes market and, Arlo Group, the Torquay-based financial planner, acquired Sheffield-based Purely Pensions, marking its entrance into the defined benefit market. Ludlow Trust Company acquired NatWest Group’s and Coutts UK’s trust businesses. Pensions and life insurance business Aegon UK acquired Grimsby-based finance engagement specialist Pension Geeks. Paypoint completed the acquisition of RSM 2000, enhancing its digital solutions business. Abry Partners-backed Options Technology, a provider of IT infrastructure to global capital markets firms, closed its acquisition of Fixnetix, a provider of outsourced front-office trading services.
Lending
Following last month’s announcement of a £272m Series D funding round, Starling Bank announced an additional £50m investment by Goldman Sachs Growth Equity to support its continued growth. Atom Bank confirmed that its £40m raise will be led by Toscafund Asset Management and BBVA.
The Co-Operative Bank announced that J. C. Flowers and Bain Capital Credit were set to become a significant shareholder, buying BlueMountain’s stake which comprised c. 10% of the A shares and c. 12% of B shares. Arbuthnot Banking Group announced that it has disposed of a further 250,000 ordinary shares in Secure Trust, raising gross proceeds of c. £3.0m, resulting in a residual 4.4% interest in Secure Trust. Metro Bank announced the completion of its previously announced acquisition of a portfolio of unsecured personal loans, with aggregate book value of £337m, from peer-to-peer investors who invested through the RateSetter platform.
Elsewhere, following its recently announced acquisition of Calverton Finance, Cubitt Trade Holdings announced that it had acquired a majority shareholding in Regency Factors and Regency Trade Finance.
The first quarter of this year saw a massive increase in deal volumes. Undoubtedly, the fear that the Chancellor was going to put up CGT after having greatly reduced, and renamed, Entrepreneurs’ Relief in the previous budget had a huge impact on certain vendors’ decisions. But, the uncertainty in the previous quarters also made forecasting future performance more challenging. That caused deals to be delayed, only to be gradually revived as the Covid cloud lifted along with the vaccine roll-out which enabled a series of deals to be concluded in the first three months of this year.
The above graph, showing transactions above £5m of value, somewhat understates what in some sectors was a dramatic spike in activity in this quarter. For instance, significantly higher volumes of transactions were agreed in the insurance broking sector than in the whole of the previous year. Similarly, the same number of deals were concluded in the IFA sector in the first quarter of this year as the total for the whole of 2020. Those are industries populated by large numbers of smaller owner-managed businesses that are controlled by individuals predominately aged over 50. Here, tax planning plays a large part in the decision making process.
While many sectors in the UK economy have clearly been heavily impacted by Covid, with specific exceptions, financial services have traded strongly throughout the pandemic. That was not a foregone conclusion last year when the FTSE 100 dropped by 32% from the middle of January to March and investors were fretting about the wider implications. But, aided by monetary and fiscal stimulus, confidence has been restored and the markets have staged a remarkable recovery, leading to the clearing of a backlog of deals to be completed.
Short-term factors should not obscure the importance of the planning for a transaction, be it in five months or five years. We are only too happy to meet you, face to face or via Zoom, to discuss what drives value and how to prepare for it.
Insurance
Q1 2021 has been a record quarter for announced UK insurance M&A, with a huge number of transactions having been precipitated by the spectre of an increase in the rate of Capital Gains Tax in the 3rd March Budget. Many of these transactions went right to the wire, completing on the 2nd March. In our February review we took a 5th March cutoff date and so many of the transactions that took place in the first days of the month were included in that newsletter. The majority of transactions below will have completed before the Budget, but were only announced after the 5th.
This applied to transactions announced by Clear and PSC Insurance, who both completed a brace of deals just before the 3rd. PSC Insurance Group acquired Leicester-based commercial broker Abaco Insurance Brokers and specialist arboriculture broker Trust Insurance Services, while Clear Group completed deals for chartered brokers and fellow Brokerbility members Luker Rowe & Co. and HIA International.
Several other commercial broking consolidators were also active. Partners& acquired Bolton-based Ives & Taylor Insurance, PIB Group acquired financial lines MGA Acquinex, Specialist Risk Group purchased specialist taxi broker Emrose Insurance Brokers, and Towergate acquired the retail arm of AFL Insurance Brokers. Global Risk Partners acquired Leeds-based Lawrence Fraser Brokers and, via its hub business DCJ Group, J E Sills & Sons. Howden Broking continued its recent run of deals with the acquisition of Sturge Taylor & Associates (STA Group), an independent superyacht broker. Xenia Broking Group, the credit insurance arm of Nexus Underwriting, announced it had agreed to acquire Status Credit Insurance Brokers, a specialist trade credit broker based in East Sussex, and London-based Costero Holdings acquired Lloyd’s broker Mar Risk Services (MarRS).
In two notable personal lines transactions, ex-Aviva CEO Mark Wilson’s Abacai Group announced that it had acquired temporary motor insurer Dayinsure, and Atlanta Group (part of Ardonagh) announced that it had acquired Marmalade, a specialist telematics broker catering for learners and young drivers.
Finally, acquisitive insurance services business Davies Group announced that private equity firm BC Partners had invested in the business, acquiring a majority stake. Existing investors HGGC and AIMCo announced that they would also remain invested in the business following the deal.
Investment
In one of the potentially first examples of a UK-based financial services firm using the SPAC route to list in the US, Kingswood Acquisition is rumoured to have signed a letter of intent to acquire Lombard International, the unit-linked assurance group owned by Blackstone with over £42bn in assets under administration. Analysts believe a deal could value Lombard International at €700m (£601m). Kingswood Acquisition listed in New York late last year and is sponsored by major shareholders in the listed wealth management firm Kingswood Group and private equity firm Pollen Street Capital.
The investment platform space saw Parmenion being bought by private equity firm Preservation Capital Partners for £102m after being put up for sale by Standard Life Aberdeen late last year. AJ Bell acquired app-based platform Adalpha to develop its smartphone offering for advisers. Pensions giant Royal London acquired digital advice business Wealth Wizards from life and pensions rival LV and retirement-focused James Hay announced the sale of its closed book of SSAS schemes to Westbridge SSAS.
In the IFA sector, AFH Financial Group received an increased offer worth £231.6m from US private equity firm Flexpoint Ford, and Ascot Lloyd secured financing of up to £100m from US-based alternative investment manager Ares Management. Tavistock Investments rejected a second approach by TEAM regarding a potential £15.2m all-share exchange offer as “significantly undervaluing” the business. Sussex-based Skerritts Consultants secured private equity backing from Sovereign Capital Partners in a deal worth £55m. New IFA-consolidator Truinvest bought NLP Financial Management and Birchwood Investment Management as part of a five-year growth strategy targeting annual revenues of £50m. Tilney Smith & Williamson expanded in Surrey with the acquisition of HFS Milbourne. Glasgow-based Chartermarque was acquired by IFA-consolidator Fairstone Group and Lumin Wealth bought Hertfordshire-based Chamberlain Stean and West, bringing its assets to more than £600m. Paradigm Norton acquired Richmond-based Tower Hill Associates and Exeter-based Clover Wealth Management. London-based MWA Financial, backed by venture capital trust provider Triple Point, bought Hampshire-based Prosperity Advisors & Stockbrokers, taking its assets to £300m.
In the wealth management sector, Craven Street Capital was created after acquiring Christchurch Investment Management and Kreston Reeves Financial Planning, totalling £850m in assets under management and advice. Saltus acquired high-net-worth specialist Consilia Wealth Management and Netwealth successfully raised £11.5m from existing shareholders and new investors.
Elsewhere, online pension provider PensionBee announced its intention to list on the high growth segment of the London Stock Exchange. Similarly, Interactive Investor is exploring a potential initial public offering this year and agreed to buy EQi, the D2C business of Equiniti Financial Services for up to £49m. Royal London bought a 30% stake in later life lending and product specialist Responsible Life and Responsible Lending, both part of Responsible Group. NYSE-listed AssetMark Financial Holdings announced the acquisition of SaaS-based financial planning and client digital engagement solutions Voyant in deal worth up to £104m.
Lending
In the challenger banking sector, Starling announced a £272m Series D funding round, valuing the company at £1.1bn pre-money. The funding round was led by Fidelity Management & Research Company, alongside Qatar Investment Authority, RPMI Railpen and Millennium Management. Zopa also announced that it had raised an additional £20m from existing investors. Elsewhere in the banking markets, Arbuthnot Banking Group announced that it has disposed of 750,000 ordinary shares of Secure Trust, raising gross proceeds of c. £8.6m, and that its subsidiary Arbuthnot Latham had completed the previously announced purchase of Asset Alliance Group Holdings for c. £10.1m. PEAC (Pan European Asset Co) Finance acquired Barclays’ Asset Finance business, comprising total assets of c. £1.15bn, for an undisclosed amount.
The boards of Sherwood Acquisitions, a newly formed company owned by investment funds managed by TDR Capital, and Arrow Global Group announced that they had reached agreement on the terms and conditions of a recommended all cash offer of 307.5p per share to be made for the entire issued, and to be issued, ordinary share capital of Arrow, valuing the company at c. £563m.
Elsewhere, MT Finance completed a management buyout by its joint founders with £8m of funding from Triple Point Investment Management. PMD Business Finance also announced a management buyout from its two shareholders and founders who will retain a minority stake and Board positions. Royal London announced it had acquired a 30% stake in Responsible Group, an equity release and later life lending broker.
On the day before the Budget, IMAS advised on two completed transactions timed to avoid the risk of an increase impacting the deals, albeit we felt it unlikely. But, we could not give any firm advice as we had no crystal ball and, had we been wrong, the cost to our clients would have been very real.
Driven by the concerns about a possible increase in tax rates, many business owners decided that speed of transaction was paramount. Instead of appointing an adviser to find them the best transaction and maximise value, they rushed to enter into one-to-one discussions with a buyer, against the background of a ticking clock. This is a clear example of the tax tail wagging the dog.
Advice is much more than just running an auction. It is about ensuring the best terms across a wide range of issues, including how to find the best cultural fit for their business. Insights into cultural issues come from really knowing and understanding all of the buyers. Other important insights come from having done many deals in a sector. A buyer’s lawyer recently complained to us we were using knowledge gained in another deal to the advantage of our client. That is of course exactly why our client had engaged us.
Advice is also about minimising the distraction for the business and its management that can impact current and post completion trading. This ranges from only engaging with buyers that have the necessary cash/willingness to pay a full price, to addressing the myriad of deal details and project management issues required to support the due diligence process.
If you work with an adviser that really understands your sector they should be able to provide valuable guidance long before you engage in any discussion with a buyer or buyers. This is why we encourage potential sellers to meet with us in advance of a process.
Insurance
There had been a great deal of commentary about the March 3rd Budget precipitating a rush to the exit by private sellers concerned about a hike in the CGT rate. Well, in the event the Chancellor decided not to raise CGT (yet), but judging by the deluge of announced deals over the past month, many private sellers chose not to take on that risk and agreed transactions in advance of budget day. New deals are still being announced on a daily basis and so the cut off date for those below was 5th March.
The busiest of the buyers was Aston Lark, announcing the acquisition of construction-specialists Sennocke International and Build-Zone Survey Services, Scottish commercial broker Bruce Stevenson Insurance, MGA Inet3 (better known as Magenta Insurance), and Bristol-based commercial broker Venture Insurance. The group also extended its presence in the health insurance market with the acquisition of Right to Health and The Health Insurance Specialists. Together these acquisitions will add more than 250 staff to the group, a significant jump up in headcount.
Global Risk Partners was also busy, announcing that it had acquired Suffolk-based construction specialist Five Insurance Brokers, and via Birmingham hub Newstead, commercial broker Alford Burton & Co. More significant however was GRP’s announcement that it had also agreed to acquire Marsh’s UK Networks business, comprising Marsh ProBroker, Bluefin Network and Purple Partnership.
Four other consolidators announced more than one deal during the month. Livingbridge-backed Jensten Group acquired both Sydney Packett & Sons and Advance Insurance Agencies. Ardonagh announced that it had acquired both specialist PI broker Hera Indemnity and M&A insurance broker Hemsley Wynne Furlonge Partners. Specialist Risk Group agreed to acquire trade credit specialist The Channel Partnership and property MGA CLS Risk Solutions. Finally, Synova-backed J.M. Glendinning announced it had acquired both Butterworth Spengler Insurance Brokers in Liverpool and High Net Worth specialist Nowell & Richards Insurance Services in Staffordshire.
Lastly among the consolidator-led acquisitions, PIB Group announced that it had acquired Element Hinton Insurance Brokers in Staffordshire.
Competition for a diminishing number of brokers is only set to become more intense and there was news this month of another PE-backed firm joining the ranks of the consolidators above. Inflexion announced that it had backed an MBO of commercial broker DR&P Group and will no doubt be hoping to emulate the recent success it had with now-realised investment in Bollington Wilson.
In other insurance distribution transactions, Markerstudy announced that it had agreed to acquire Brightside Group, the Anacap-backed business it had previously sought to acquire in 2013, US business Applied Underwriters acquired MGA Concept Special Risks, MGA Avid Insurance acquired construction specialist Incorporated Insurance Group (IIGL), and JC Flowers-backed OneGlobal announced that it had sold Lloyd’s Broker SSL Insurance Brokers back to former owner Andrew Sturdy, via his newly formed company Sturdy AGI Holdings.
Lastly, insurer AXA XL confirmed that it had agreed to sell its UK private client business to Aviva, which has been busy divesting a number of its overseas operations as it seeks to focus on a smaller number of core markets.
Investment
The investment platform James Hay acquired the rival adviser platform Nucleus Financial for £145m. Following the acquisition, James Hay intends to merge the firms’ operations to create a financial planning and retirement-focused platform with client assets of £45bn.
In the asset management sector, Foresight Group, the specialist infrastructure and private equity investment manager, floated on the London Stock Exchange with a market capitalisation of around £455m. Alternative credit asset management firm Cairn Capital, supported by its majority shareholder Mediobanca, agreed to acquire and merge with Bybrook Capital, a specialist distressed credit manager based in London. AssetCo announced plans to transform itself into an asset and wealth management business and took a further 2.9% stake in River & Mercantile lifting its interest to 5.9%. Polar Capital completed its previously announced acquisition of Dalton Strategic Partnership, a boutique asset manager with over £1.2bn of assets under management, for £15.6m.
The wealth management sector saw continuing interest from private equity funds on a large scale. Fairstone secured a significant investment from the global private equity house TA Associates with its current backer Synova also retaining a stake in the business. Another international investment firm, HPS Investment Partners, agreed to make a £125m investment into Canaccord Genuity’s UK wealth management group. It acquired convertible preference shares, which, if converted to ordinary shares, would give it a 22% stake. US private equity firm Flexpoint Ford increased its bid for national advice firm AFH Financial from £225m to £232m after its previous offer, which had been recommended by the independent directors, had failed to win approval by the shareholders. Elsewhere in the sector, the wealth management boutique Oberon Investments Group (formerly Baskerville Capital) with £400m of client assets floated on the growth market segment of the Aquis Stock Exchange.
In the IFA sector, Independent Wealth Planners acquired Edinburgh-based Sutherland Independent with £270m of client assets. Mattioli Woods added 150 clients with £80m of assets with the acquisition of a financial planning firm Montagu for £2.3m and Wren Sterling completed the acquisition of West Yorkshire-based White Wells Investments, adding £50m of client assets. The Swindon-based Unique Financial Planning launched a wealth division after it had merged with part of financial adviser Bright Blue Wealth at the end of last year.
Elsewhere, the US tech-focused private equity investor Siris tabled a takeover offer for the financial administration outsourcing business Equiniti, valuing the group at nearly £600m. To simplify partnership arrangements between the two groups, Phoenix Group bought the “Standard Life” brand from Standard Life Aberdeen which, in return, acquired the self-invested personal pension, onshore bond and the trustee investment plan businesses from Phoenix Group and begun a review of all of its business brands. Also in the pensions arena, Dentons Pension Management acquired MAB Pensions, a small self-administered scheme administration business, for an undisclosed sum.
Lending
There was considerable M&A activity in the banking market relating to loan portfolios: Metro Bank acquired a portfolio of predominantly unsecured consumer loans from peer-to-peer investors who had invested through the Retail Money Market (“RateSetter”) platform for a cash consideration of up to £384m; OSB Group announced that it had completed the purchase of a c. £55 million portfolio of UK residential mortgages from Arbuthnot Banking Group; Tandem Bank acquired the £100m mortgage loan book of private lender Bank and Clients; and NatWest Group completed the acquisition of a c. £3bn residential mortgage portfolio from Metro Bank. In addition, UK Asset Resolution confirmed that it had agreed to sell the issued share capital of Bradford & Bingley and NRAM and their remaining mortgage and loan portfolios to a consortium comprising Davidson Kempner Capital Management and Citibank.
Elsewhere, TDR Capital announced that it had made an approach to the Board of Arrow Global regarding a possible all-cash offer at 305 pence per share, valuing the company at c. £541m. The Board responded that it was considering the proposal. NatWest Group announced the completion of its strategic review of Ulster Bank, resulting in a phased withdrawal from the Republic of Ireland. Distribution Finance Capital Holdings announced that it had conditionally placed c. 72.7m new shares, representing c. 40.5% of the enlarged group, to raise gross proceeds of c. £40m in support of its growth strategy.
I can confidently predict by the time you read our next monthly M&A review I will be certain what the changes to the capital tax regime will be. And because you will have read the same papers as me, so will you. Discretion being the better part of valour, so I am keeping shtum on the subject.
What I am confident of is there will be a mini peak of transactions as the threat of higher capital gains tax rates has caused some owners to accelerate their plans to exit. But it will not be a wall of deals that are being reported in other sectors.
A sale of an FCA regulated business needs FCA approval which can take up to three months to be obtained. But this is just the external manifestation of the impact on timing of deals in a regulated environment. Due diligence of regulated companies is often more rigorous as buyers look to ensure any regulatory issues are identified and the potential risks can be mitigated and/or the costs of rectification quantified.
It is not uncommon for us to have data rooms with thousands of documents in them. Due diligence is an exhaustive, and in most cases, exhausting process that can take months to complete, restricting the ability of owners to execute quick exits.
While a few owners may have triggered the process earlier and are now hoping to complete before the end of the tax year, others have opted to take the risk of a higher tax rate rather than accelerate what is a complex process that requires careful preparation. There is an adage that tax is a tail that should not wag the dog. This might be what we are currently observing.
Insurance
2021 got off to a busy start for Insurance M&A with 13 announced transactions, including a number of high-profile transactions on the distribution side of the market, with two of the major broking consolidators announcing a change of ownership.
Early in the month, Inflexion-backed Bollington Wilson Group announced that it had been acquired by Arthur J. Gallagher in a transaction valued at more than £200m. Less than a fortnight later it was the turn of PIB Group, which announced that it had undertaken a secondary PE deal, with funds managed by Apax Partners acquiring the business from Carlyle (who will remain invested as a minority shareholder) in a deal valuing PIB at more than £1bn.
In another high-profile deal in the month, leading motor insurer Markerstudy announced that it had taken a £200m investment in a deal led by Pollen Street Capital. Markerstudy completed its acquisition of the Co-op’s underwriting business at the end of 2020.
The month also saw a continuing flow of smaller commercial broking deals, with activity largely driven by the broking consolidators. Global Risk Partners acquired Birmingham-based commercial broker Newstead Group and, via its healthcare hub Premier Choice Healthcare (PCH), a book of healthcare business from SJA International. PIB Group acquired construction specialist UK & Ireland Insurance Services. Finch (part of Ethos) acquired Compass network member Headley Group, while Finch’s ultimate parent Ardonagh separately acquired PI specialist and Lloyd’s broker Hera Indemnity. Finally, US firm AssuredPartners announced that it had acquired Scottish broker Borland Insurance, and Heath, Crawford & Foster acquired both ABA Insurance Services and Bradshaw Bennett.
There was also continuing M&A activity among MGAs. Specialist Risk Group announced that it had acquired building & construction specialist GB Underwriting, and Newcastle-based Generation Underwriting Management was acquired by Arden UW, part of Willis & Company (the privately owned business based in Northern Ireland, not to be confused with the other Willis ..).
Lastly, loss adjuster Woodgate & Clark announced that it had acquired Manchester-based Quadra Claims Services.
Investment
National advice firm AFH Financial agreed terms for a £225m takeover offer from a US private equity firm Flexpoint Ford, showing the continuing interest of the private equity community in the wealth management space. Similarly, Hawksmoor, the discretionary fund manager, agreed to be acquired by Hurst Point Group, a holding company, backed by another US private equity fund The Carlyle Group. Last year Hurst Point Group went on to buy five financial planning firms through its subsidiary Harwood Wealth Management.
In the asset management sector, Foresight Group, the specialist infrastructure and private equity investment manager, announced plans for a flotation of its shares on the London Stock Exchange’s main market. Natixis Investment Management agreed to sell its majority stake in H2O Asset Management back to the investment firm’s management team and Toscafund Asset Management took a 29.8% stake in AssetCo in consortium with other investors, including the former Vice Chairman of Standard Life Aberdeen, Martin Gilbert. AssetCo will look to pursue strategic investment opportunities in the financial services sector and has already taken a 2.9% stake in River & Mercantile.
Intermediate Capital Group, the private debt and equity provider, agreed to acquire Broadstone, the pensions, trustee and employee benefits group, from Livingbridge, another private equity fund. Dentons Pension Management acquired Brown Shipley’s pension administration business and professional trustee company and Mattioli Woods bought the Exempt Property Unit Trust administration business of BDO Northern Ireland to complement its SSAS and SIPP proposition.
In the IFA space, Beech Tree Private Equity invested in London and Glasgow-based Advanta Solutions, with c. £500m of client assets, and committed between £10m to £40m to fund Advanta Solutions’ acquisition strategy. Perspective Financial Group acquired Atkinson White Partnership and Independent Life & Pensions Group, gaining over 900 clients and £250m of additional client assets from the transactions. Thorntons Investments bought Aberdeen-based Matheson Financial Consulting and Dundee-based Sonas Wealth Management, adding £175m of client assets. Fairstone announced the purchase of Hammett and Petch Financial Planning which has some £60m of client assets. Connectus Wealth Advisers, a partner firm of US wealth adviser Focus Financial Partners, acquired Cheshire-based Watterson Financial Planning, and Vintage Wealth Management agreed to acquire Corfe Wealth Management as part of its ongoing growth strategy. North Wales-based Celtic Financial Planning acquired the financial advisory arm of Halton Insurance Services and Abacus Money Management purchased Somerset-based Westcliff Financial Management.
Elsewhere in the sector, James Hay is rumoured to be in the prime position to acquire Nucleus, the wrap platform provider. Mattioli Woods made a strategic minority investment in the wealth management software business Tiller Technologies and Transact’s parent company IntegraFin Holdings purchased the financial planning software provider Time4Advice.
Lending
In a quiet start to the year, the banking sector provided the most notable transactions. Oxbury Bank, the specialist agricultural lender, launched having secured an additional £15m funding from its Series C round that was led by Wheatsheaf Group alongside existing investors Frontier Agriculture and Hutchinson Group. Shawbrook Bank announced that it had agreed terms to acquire specialist intermediary business, The Mortgage Lender, to strengthen its position in its core residential and buy-to-let markets.
Elsewhere, specialist lender Pivot announced that it had secured a £15m investment from Quilam Capital: the new funding lines will support growth in its unregulated bridging and development finance offering. Ascent Performance Group, part of the Irwin Mitchell Group, announced that it had acquired Excel Collection and Enquiry Services.
