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Similar numbers, but different realities?

 

We have tracked M&A activity across General Insurance and Investment, two key sectors in UK financial services, shown annually and quarterly in the graphs above and below, respectively.Both sectors appear to perform in a broadly similar manner. 2021 was a record year (certainly since we started collecting detailed M&A records in 2011), which seemed inconceivable when we entered into lockdown in April 2021 and buyers put their pens down. 2022 saw a sharp drop from 2021 but only slightly lower activity than in 2020 against the backdrop of Russia’s invasion of Ukraine and rising inflation and interest rates.

Over this period, both General Insurance and Investment have seen significant amounts of private equity capital being deployed in consolidating the sectors. Last year’s 25% drop in deal volumes in the Investment sector partly reflected the volatility in stock markets and their impact on reduced appetite for risk among buyers in the wake of pressures on funds under management, revenues and, more significantly, earnings in the sector.

Conversely, revenues in general insurance have remained robust and the 45% fall in transaction volumes in this segment reflects an increasingly limited supply of quality assets. Demand from buyers remains strong which has resulted in prices increasing markedly in 2022.

While the number of announced deals in the two sectors were similar, our records show the total population of independent entities in the General Insurance sector is only 1/3 of size of the Investment sector, where much of the M&A consolidation is being played out among businesses worth less than £5m (and, therefore, does not appear in our data in the graphs). The consolidation of the General Insurance sector is significantly more advanced, suggesting supply side constraints will keep prices high in 2023. We expect to see a significantly higher number of deals in Investment over time, but volumes may remain somewhat subdued until stock market conditions stabilise.

Insurance

UK Insurance M&A activity ended 2022 with a bit of a whimper, with only nine new UK deals to report on. We are working through the numbers and will publish detailed M&A statistics with our UK Insurance Distribution annual review in a few weeks’ time, but based on initial analysis sector M&A volumes for the whole of 2022 were around 35% lower than 2021, with fewer than 100 announced transactions (vs. 148 in 2021).

The most active buyer in December was Jensten Group, which rounded out a busy 2022 with two new acquisitions, adding both motor trade and fleet specialist Bellegrove in Kent and specialist commercial broker Basil Fry & Company, which focuses on the removals, storage and self-storage sectors. Together the two deals will add around £40m of GWP and 80 staff to Livingbridge-backed Jensten.

Two notable deals by commercial broking consolidators were announced in the first week of January 2023 but are reported on here. Specialist Risk Group announced that it had acquired Oxfordshire-based commercial broker Fleet & Commercial, and Global Risk Partners added Christopher Trigg, a long-established commercial broker in Rickmansworth that is also a leading member of GRP’s own Hedron Network.

Elsewhere, acquisitive credit specialist Xenia Broking revealed that it had added the credit insurance business of Linda Scott Associates in Glasgow, Howden-owned Aston Lark announced that it had acquired the marine trade book of business of Navigators & General, which will complement their existing personal marine offering under the Haven Knox-Johnston brand, and UKGlobal Leeds (also part of Howden) announced that it had added Logic Insurance Services.

In insurance technology, Stubben Edge announced another deal with the acquisition of Insurercore, a distribution platform that connects brokers with underwriters by linking relevant risks with risk appetite.

Finally, in the largest deal of the month, BMS Group revealed that it had secured new investment from leading private equity group Eurazeo, which will invest as a minority alongside existing backers British Columbia Investment Management Corporation (BCI) and Preservation Capital Partners in a transaction reported to value BMS at £1.75bn.

Investment

2022 ended with a slightly quieter month of M&A activity across the Investment sector. In the wealth management sector, Schroders-owned Benchmark Capital bought a 51% stake in Harrogate-based advice network Oculus Wealth, which looks after £2bn of client assets. Moneyfarm agreed to acquire Profile Pensions, the UK digital pension adviser and pensions consolidator, with approximately £870m in AUA. AIM-listed IFA consolidator Kingswood, acquired Macclesfield-based JFP Financial Services and Newbury-based Barry Fleming & Partners, adding £360m and £140m in AUA, respectively. Perspective Financial completed the purchases of East Sussex-based Informed Financial Advice adding £100m in AUA and Staffordshire-based Hunter & Co. St James’s Place appointed representative firm Tweed Wealth Management acquired the wealth arm of Inverness-based legal firm Macleod & MacCallum.

In other parts of the sector, it was reported that the private equity-backed wrap platform Nucleus Financial has completed its due diligence on the listed SIPP provider Curtis Banks and is close to agreeing the final terms of an offer for the PLC. NYSE-listed MetLife Inc, through its institutional asset management business MetLife Investment Management, completed the acquisition of London-based Affirmative Investment Management, a specialist global ESG impact fixed income investment manager, adding $1bn in AUM. The open finance, open data and payments platform provider Moneyhub announced it had secured a further £15m in funding from the retirement and savings business Phoenix Group, which joined Legal & General and Lloyds Banking Group in investing in the fintech company.

Last week I spent a day in the Northwest with a client planning for their sale in some 15 months’ time. We are keen to spend time working with them on preparing the business well ahead of the transaction to help the client boost the sales price and identify possible issues that could derail a process.

We covered a wide range of issues, including management structure post deal, the impact of client concentration and how this might be mitigated, the benefits and issues involved in having a bespoke IT system etc.

Much of the conversation was around the need to – as far as practicable – de-risk the transaction for the buyer. This can come as something of a surprise for our clients, as they see managing such risks as part and parcel of being in business. But of course, the lower the risk for the buyer, the higher the multiple they can apply in valuing the business and the less onerous any earn-out needs to be. Minimising the risks for a buyer is a key part of any well thought through sales process.

Small changes made now can have a disproportionate impact in 15 months’ time. Good advice pays for itself many times over. The earlier discussions start, the greater the opportunity to benefit from that advice. This is why we welcome early engagement well in advance of the actual decision to commence a formal process.

We would be delighted to discuss your plans to sell in the future, be that in three months or in three years.

Insurance

November marked a relatively busy month for new announced UK insurance M&A with ten new transactions to report on and no fewer than five of the established broking consolidators announcing new deals in the month.

In commercial broking, Synova-backed JMG Group (J.M. Glendinning) announced two new acquisitions, adding Premier Insurance in county Durham and Wokingham-based BJP Insurance Brokers, taking the group’s GWP to above £200 million. Global Risk Partners was also active, announcing its largest acquisition since its takeover by Brown & Brown earlier this year with a deal for C.C. Flint & Company (trading as Flint Insurance) in Kent.

Two commercial broking deals in the month involved PI-focused brokers. Ardonagh Advisory announced a deal for The Professional Broking Group (trading as The Professional Indemnity Company) in Chester, and AssuredPartners UK added Devon-based Anchorman Insurance Consultants. Stay classy.

Away from the ‘usual suspects’ there were two notable transactions involving privately owned brokers, with Robin Plaster’s One Broker Group announcing a deal for local competitor Uttings Insurance Brokers in Norwich, and The Needham Group acquiring Corporate Insurance Solutions in Lutterworth.

There were two small MGA transactions to report on, with Stubben Edge Group adding MGU Cedar Underwriting, and iprism Underwriting announcing its first acquisition in a deal for Metier Trading Limited (MTL), which trades as Metier Underwriting.

In a rare personal lines transaction, PIB Group announced a recommended cash offer for Jigsaw Insurance Services in Harrogate. Jigsaw is active across the Motor, Pet and Breakdown segments and the transaction is subject to the Takeover Code, as a result of the business having previously had a public listing.

Investment

M&A activity across the Investment sector showed no signs of slowing down in November. In the wealth management sector, Schroders-owned Benchmark Capital bought Milton Keynes-based Advison and took a 49% stake in chartered financial planning firm, Chartered Independent. AIM-listed Kingswood announced a trio of acquisitions, including Strategic Asset Managers, Employee Benefit Solutions and JCH Investment Management for £5.1m, £5.1m and £3.5m, respectively. Private equity-backed IFA-consolidator Progeny announced the acquisition of chartered financial planning practice, Lewis Brownlee Financial Services, expanding its presence in the south of England. Radiant Financial, sponsored by private equity firm Apiary Capital, acquired Dudley-based TWM.

Elsewhere in the sector, it was reported that TA Associates has hired Goldman Sachs to explore a possible sale of Russell Investments, which currently manages $293bn in AUM. Advice network In Partnership, owned by Russell Investments, was separately, reported to be up for sale. Global investment bank Houlihan Lokey acquired Oakley Advisory, an independent advisory firm, servicing clients across the digital infrastructure, communications services and cloud landscape. Manchester-based Zeus Group announced the acquisition of Arden Partners from its current owner The Ince Group, for £3m, enlarging its client base and sales and trading capabilities. LSE-listed Alpha Growth acquired Havelet Assignment Company, a Barbados-based financial services company, specialising in settlement assignments. It was also reported that wrap platform Nucleus Financial is in advanced discussions with the board of Curtis Banks, regarding a possible cash offer for the SIPP provider.

Some of the buyers we talk to on a regular basis recently commented that they had been sent (the same) work of fiction.

The principal driver for valuation across many UK financial services businesses is EBITDA.  Whilst simply expressed, this acronym covers a multitude of sins. Historic, forecast, normalised (i.e., following the removal of non-recurring items – often “lifestyle” expenses) pre or post synergies etc. There is rarely a single and agreed upon measure of what constitutes the relevant EBITDA for valuation purposes in any business. And that is before one gets into different accounting policies around e.g., revenue recognition.

On top of this there is of course the structuring of any M&A deal; earn-outs, earn-ups, reinvestments etc. Then finally one needs to add strategic value into the mix; for example, one buyer may be very keen to stop a competitor gaining a foothold in a particular area.

Looking through this complexity, the most subjective areas are that of synergies and strategic value where the values are only known by the buyers themselves.

The work of fiction the buyers were complaining about was an information memorandum on a business for sale that not only detailed wholly unrealistic cost cutting projections but quantified supposed synergies and strategic value for a buyer and baked these into an “adjusted” EBITDA number against which prospective buyers were instructed to bid. This resulted in an uncertainty around what the real numbers are, and offers were made that discounted the numbers shown.

Buyers wish to retain all the value of synergies and strategic benefits for themselves. An effective auction process forces buyers to price in and share much of the combination benefits. This is particularly true in current market conditions. When advising sellers, our focus is to ensure the buyers have all the information they need in order to assess synergies/strategic value knowing their assessments are based on facts, not fiction.

Presenting inflated numbers also undermines the building of a crucial element of the great majority of transactions, trust. Trust is the dark matter of the M&A world. It is crucial, but difficult to measure. Trust that the buyer will not look to chip the price at the last moment. Trust that the buyer will honour the earn-out. Trust that the buyer will fulfil their wider commitments.

If one can’t trust the numbers presented, what can one trust? Hence the need to build trust from the outset and that starts with selecting an adviser that is trusted in the industry.

IMAS has been building trust in the industry for 30 years. We are always delighted to meet to discuss the hard and soft issues around selling.

Insurance

September saw another relatively quiet month in terms of UK insurance M&A volumes, albeit with a number of notable new transactions announced across a number of subsectors.

In commercial broking, increasingly active US acquirer Acrisure announced a second deal in as many months, adding Sutton Winson and Sutton Special Risks in a deal that increases the group’s UK premium to £175m. Another US broking group that has been seeking to do more M&A in the UK, NFP, also announced a new acquisition, adding Bentley Insurance Services in Staffordshire.

There were several smaller commercial broking deals in the month, with GRP-owned County Group announcing it had acquired Business Insurance Specialists (BIS), a commercial broker in Llandudno, Dickson & Co in Northern Ireland adding Armagh-based Jim Burton Insurance Services, and independent broker FR Ball Insurance in Monmouthshire announcing both a merger with Wessex Business Services to create Wessex Insurance Brokers, and the acquisition of Lawson D Jones Insurance Consultants.

In the London market, Ardonagh announced it would acquire Oxford Insurance Group from USI (a rare case of a US broker divesting a UK business), and Lloyd’s broker Servca added Medicas, a specialist provider of medical indemnity, medical malpractice and healthcare liability covers.

In personal lines, South African cycle Insurtech Two Three Bird (TTB) acquired ETA Services, a long-established specialist broker with an ethical and environmental focus and with whom TTB had an existing underwriting relationship.

On the Insurance Services side, Allianz X, the digital investments arm of Allianz, announced the acquisition of Innovation Group, whose business includes the ‘Gateway’ digital claims management platform, Stubben Edge added Helodrium, a Lloyd’s-focused compliance consultancy, and Ardonagh announced that it had acquired Stallard Kane Group (SKG), a provider of health and safety, HR, training and employment law compliance consultancy services based in Gainsborough.

Investment

M&A activity in the Investment sector was largely driven by continued consolidation in the wealth management sector, including Harwood Capital Investment Trust increasing its stake in LSE-listed Frenkel Topping to 30%, while Signia Wealth’s CEO, Carnegie Smyth, and his business partner Greg Malone bought out the company’s founder John Caudwell. Succession made its first acquisition since its takeover by Aviva, buying G+E Wealth Management, adding £800m in AUA. One Four Nine Group reached £1bn of client assets through the acquisition of Nottingham-based HFL Financial Services. Wren Sterling Group announced the acquisition of Leamington Spa-based HB&O Financial Services, adding £250m of AUA. Private equity-backed Advanta Solutions announced the purchase of London-based Genesis Financial Planning adding £150m in client assets. Cooper Associates Wealth Management acquired fellow St James’s Place Appointed Representative Pengilly Cox Financial Associates. Perspective Financial acquired Redcar-based Esk Valley Financial Services, adding £30m in AUA. London-based Engage Financial Services made its first acquisition, acquiring Kench & Co Financial Services, adding £20m in client assets. Clifton Asset Management acquired Mark Philips Ltd, a Caerphilly-based financial adviser.

Elsewhere in the sector, Nuveen, the investment manager of TIAA, acquired a controlling interest in Arcmont Asset Management a European private debt investment manager with $21bn in committed capital. Link Fund Solutions was put up for sale by its Australian parent company Link Administration Holdings amid an FCA investigation into its role in the collapse of the former LF Woodford Equity Income fund. Copper Street Capital invested in compliance consultants Thistle and Panmure Gordon made a formal offer for rival small cap specialist FinnCap.

Numbers do not lie, but they can be misleading.

Whilst in Q3 both General Insurance and Investment UK M&A volumes (announced basis) were down, we are not experiencing a marked drop off in demand from buyers. If anything, the opposite.

Before geolocating and other similar technologies became the norm, people used to say “you wait for ages and then three buses all come along at the same time”. Deal volumes can still be like this. Deals announced today started life 9 to 15 months ago, often much longer.

Investors need to put their money somewhere. In times of rapid inflation and (for the time being) historically low interest rates money is no longer a risk-free asset. Investors have been pulling their money out of Tech and other high growth segments. Insurance, especially distribution, looks like something of a relative safe haven.

The Investment sector is somewhat more vulnerable to market sentiment where valuations are generally heavily dependent on AUM (assets under management). MAC (Material Adverse Change) clauses are re-emerging in sale and purchase agreements with split exchange and completion– as regulatory approval is often required for a change of control.

Activity in the Lending sector is typically lower and more volatile. However, the rapidly changing outlook for interest rates and inflation are a complicating factor.

Prospective sellers often ask us “is it a good time to sell?”. Of course, we have to point out that the conditions today are not what really matter; what is more important is what they will be like in six months’ time.

But for the moment there is no buyers’ strike, just continued strong demand for attractive assets. Will this continue? Ask me in six months.

Should I be thinking about selling? Come and talk to us.

Insurance

It is dangerous to try to read too much into a single month – and of course the announced deals in any given month reflects transactions that have been many months or even years in the making – but September 2022 saw the lowest volume of announced UK Insurance M&A for at least four years (when the current author started writing these monthly newsletters). As such, it’s a short note this month and we will be nervously watching to see whether it marks the beginning of any sort of trend.

In broking, PIB Group announced only its third UK deal of 2022, acquiring super yacht specialist Zorab Insurance Services. Clear Group announced that it had acquired LawSure Direct, a legal indemnities broker based in East Sussex, and Acrisure continued its UK expansion with the acquisition of CRK Commercial Insurance Services, a schemes specialist with particular focus on the Engineering, Rope Access and HVAC Industries.

At Lloyd’s, US insurer Westfield Specialty announced that it had acquired Syndicate 1200 from Argo Group International, with a reported purchase price of $125 million.

In personal lines, it was reported that travel specialist Staysure has taken full control of price comparison site Payingtoomuch.com, where it has been the majority shareholder since 2019.

Finally, Companies House filings revealed that Inflexion-backed broker DR&P Group had quietly made another acquisition over the summer, adding MG Insurance Consultants, a wholesale business with a focus on property and trading as MG Underwriting.

Investment

M&A activity in the Investment sector revolved almost solely around wealth management, with the most notable transaction being the completion of RBC’s £1.6bn public takeover of Brewin Dolphin. Kingswood announced the acquisition of a 70% stake in Dublin-based Moloney Investments for a total cash consideration of £23.4m, adding £630m in AUA. Brooks Macdonald acquired Adroit Financial Planning from law firm Slater and Gordon, adding £350m in assets. Radiant Financial announced the acquisitions of Barnstaple-based Irvine Financial Services, Oldham-based Landmark Financial Planning and Andrew Gibbs IFA based in Henley-in-Arden, adding £325m in client assets. Solomon Capital, backed by private equity firm JC Flowers, acquired multi-office advice business Gale and Phillipson. Clifton Asset Management concluded the takeover of Stroud-based financial adviser Noble James Associates, adding £130m in AUA. Evelyn Partners announced the acquisition of the investment management business of Arena Wealth, adding £90m of AUM. Sovereign Capital Partners-backed wealth manager Skerritts acquired Hampshire-based PS Financial Advisers adding £60m in AUA, and Gilson Gray Financial Management, the financial services arm of legal firm Gilson Gray, acquired North Berwick-based Wallace Financial Planning in a seven-figure deal.

Elsewhere in the sector, platform business Parmenion acquired Midlands-based discretionary fund manager Evidence Based Investing, which manages £1.9bn. Parmenion was reported to be looking for a new strategic investor, valuing the company between £300m and £400m. Emerging markets specialist asset manager Somerset Capital, which runs about $5bn in AUM, was reported to be up for sale, with a management buyout or merger potentially on the cards.

Lending

In the lending sector, HSBC made a $35m investment in the UK-based fintech firm Monese, a move that will boost HSBC’s banking-as-a-service proposition. Digital mortgage lender Perenna raised $30m from US venture capital firm IAG Silverstripe in a Series A funding round to fund its growth.

It was reported that the Durham-based digital lender Atom was still considering going public next year after its £700m merger with a US-based SPAC had been called off. Meanwhile, BC Partners and Pollen Street Capital dropped their plans to sell challenger bank Shawbrook given the current uncertain economic climate.

The question we are currently being asked the most is undoubtedly whether the current economic turmoil is impacting the prices at which (financial services) businesses are being transacted – from what are historical highs.

And the answer is no, and maybe yes.

Valuation is a complex mixture of factors, but at its crudest the two key factors determining the consideration payable for a business are the underlying profitability of that business (this is a book in its own right) and the multiple the buyer applies (another dissertation in its own right).

The answer above is no insofar as headline multiples are – for the moment – broadly being maintained.

Selling a business is essentially a transfer of risk from the seller to the buyer. The answer “maybe yes” is that the sale of private companies will typically involve some form of earn-out or deferred and/or contingent consideration. Hence, if the business performance falters post completion, the seller will see the ultimate consideration being reduced. The higher the upfront payment, the greater risk transfer to the buyer.

If the earn-out produces nothing, but the upfront payment secured is, say 80%, of the potential full value at completion at a high multiple, it might still be a very good deal given the likely new reality (for many) of lower business profits.

But the greatest risk of not achieving the ‘correct’ price for your business is to go straight into a one-to-one negotiation with a buyer without exploring other options. If this was not the case then buyers would not be so keen to avoid competitive processes. One business owner recently told us about the “special deal” he was getting from his buyer. The only thing special about it was that he was selling at a discount to the prevailing market rate.

And sellers who enter into bilateral negotiations not only forgo value, but often also miss the opportunity to find a better fit, given the numerous buyers currently keen to acquire.

We are always happy to meet to discuss current pricing and valuations, structures and buyers, whether you are thinking of selling this year, or in the next five or even ten years.

Insurance

August saw a bit of a summer lull in UK Insurance sector M&A, with only nine new deals to report on this month.

In commercial broking, Jensten Group continued its recent flurry of announced transactions with two new deals, acquiring long-established (since 1908) broker J. Bennett & Son Insurance Brokers in Buckinghamshire, including its (even longer-established – 1851 apparently) subsidiary Mathews, Comfort & Co. in Oxfordshire, and separately concluding a deal for Coversure Nottingham, an existing franchisee (since, erm, 2004).

Also announcing two new deals and continuing the recent spate of broking deals taking place in Scotland was Seventeen Group, which added CCRS Brokers and, separately, Broker Scotland, a property sector specialist. Both businesses are based in Glasgow. Lastly in commercial broking, Aston Lark announced the acquisition of AJ Insurance Service in Essex.

In the MGA segment, UK General Insurance again changed hands in a transaction that sees Primary Group divest the business alongside stablemate Precision Partnership in a private equity backed deal led by Rcapital, investing alongside Montague Investment Group.

In the London market, LatAm focused reinsurance specialist Ocean International Reinsurance Company (Ocean Re) announced that it had acquired Oceva Risk Solutions, and Sompo International entered into an agreement to divest its run-off Endurance at Lloyd’s (EAL) business to RiverStone International.

Lastly, Arthur J. Gallagher announced that it had acquired AnotherDay, a crisis and risk management consultancy with which Gallagher has been working closely for several years and that will sit within the group’s UK speciality segment.

Investment

There was no holiday lull in M&A activity in the Investment sector in August, especially not in the wealth management sector. Most notably, Aviva completed the £385m acquisition of Succession Wealth, a deal that was first announced in March. M&G plc announced the acquisition of an initial 49.9% stake in Continuum Financial Services, with a scheduled agreement in place to acquire the remainder over the next two years, adding £1.5bn in AUA. Private equity firm Preservation Capital Partners invested in a majority shareholding in wealth manager Saltus, which by the end of 2022 is projected to reach £4bn in AUA/M. IWP acquired Cambridge-based Holistic Financial Leadership, adding £250m in AUA. Sovereign Capital Partners-backed Skerritts acquired City-based Bradbury Hamilton, adding £330m in AUA. One Four Nine Group acquired Aberdeen-based firm Russell Gibson Financial Management Limited, expanding the group’s footprint in Scotland, while Kingswood Holdings completed on the acquisition of Surrey and Hampshire-based Smith Pearman and Associates with £70m in AUA.

In the asset management sector, JO Hambro Capital’s parent, Pendal Group, accepted Perpetual’s A$2.5bn offer. The acquisition is expected to create the second largest asset manager by size in Australia with over A$201bn in AUM. Tatton Asset Management completed its £7m acquisition of model portfolio and investment fund provider, 8AM Global.

Elsewhere in the sector, Phoenix Group announced the acquisition of SLF of Canada UK (Sun Life UK), a closed book UK life insurance company, for £248m. abrdn bought a stake in digital securities exchange Archax, while Tenzing Private Equity invested in Market News, a platform that provides financial data in the global FX and securities markets.

Lending

August saw a low level of M&A activity in the lending markets with only a handful of transactions announced this month.

Fidelity Bank agreed to take over the UK’s unit of Nigeria’s second oldest lender, Union Bank, for an undisclosed sum. Jupiter Fund Management was reported to be in talks to divest its entire 10% stake in Starling Bank. Indian lender Axis Bank terminated the deal to sell its UK arm to OpenPayd and will now start the winding-up process of Axis Bank UK.

Elsewhere, Evolution Money, the second charge lending specialist, announced the successful completion of its private securitisation, with a facility of up to £290m.

An old Stock Exchange adage was “sell in May and go away, come back on St Leger’s Day” (which is in September, as anyone with an interest in horse racing will know) – and this was probably sound advice when all trading was conducted face to face on the Stock Exchange floor, pre ‘Big Bang’ in 1986. As people drifted away for the summer, volumes would have dropped and prices drifted downwards.

There is no real evidence that this adage still holds true and it does not take too much imagination to see why. Other than some pretty remote areas, trading can be conducted almost anywhere in the world. Much trading is algorithmically driven and computers don’t take holidays.

We carefully monitor deal announcements in UK financial services M&A (and have built the technology that identifies any unannounced transactions) and see no conclusive evidence of seasonal fluctuations.

Unlike trading shares in quoted companies that can be effected in seconds, private company deals in financial services, with the requirement to get FCA approval, typically take 6 to 12 months, from start to finish. Consequently, deal announcements do not reflect deal commencements.

Historically we have steered our clients away from actively launching a sale process during July or August, on the basis that it may not be possible to reach out to all the key decision makers at the respective buyers. But as remote working, video conferencing and increasing connectivity – where Covid has of course greatly accelerated the uptake – has rather eroded the “sanctity” of being on holiday and, as such, this is no longer our advice.

We will now send out Information Memoranda as a matter of course during August, knowing they will be received and read by the key people within 48 hours.

However, video conferencing has not completely replaced the face-to-face meeting. And even if our clients were happy to meet the different buyers over a video call, in a sellers’ market like the one we are still in, all buyers want the opportunity to be able to pitch why they are the perfect partner face to face. They also – quite rightly – fear that if others meet face to face, and they do not, they will be at a disadvantage.

Technologies change behaviour, and so we have changed our advice. But if one wants to get a message across there remains no better way of doing it than face to face.

Insurance

There were no real signs of a summer lull in UK Insurance M&A activity during July, with ten new deals to report on.

As ever, the majority of new announced transactions were in commercial broking. Global Risk Partners, whose own acquisition by Brown & Brown completed during July, announced three new deals in the period, acquiring First Insurance Solutions in Maidstone, Woodward Markwell Insurance Brokers in Ipswich, and – via its Birmingham ‘hub’ business Newstead Insurance Brokers – Crendon Insurance Brokers. Together these deals add around 100 additional staff to the group and take GRP’s total deal tally above 100.

Other consolidators (and I am donning my tin helmet as I type that word, as some of them get in touch to tell me off for referring to them as such…) that were active in July were Jensten, Clear, and Seventeen. Jensten Group announced that they had separately acquired both Ravenhall Risk Solutions, a Chartered broker with offices in Belfast, Luton and Leeds, and Origin UW, an MGA based in Tunbridge Wells and specialising in SME business. Clear Group, who very recently received new investment from Goldman Sachs, announced a deal for GSI Commercial Services in Kent. And Seventeen Group, which has also recently announced a refinancing, acquired Bryce-Smith & Partners, a small HNW specialist in London.

Away from the commercial broking consolidators, Aviva announced a (previously trailed) deal to acquire the HNW personal lines business from MGA Azur Underwriting, further boosting its private client business, Ardonagh announced that its MGA business Geo Underwriting had acquired loss recovery and assistance specialist Lorega from PE backers Alcuin Capital Partners, and Booking Protect, the leading refund protection specialist, announced that it had been acquired by Cover Genius, a global insurtech focused on embedded insurance and best known for its ‘XCover’ distribution platform.

Investment

The M&A deal flow in the Investment sector did not run dry in the heat of July, especially not in the wealth management sector where Hurst Point Group, backed by the US-based international private equity manager, The Carlyle Group, announced the acquisitions of Metis Wealth and Metis Asset Management, subject to regulatory approval, each with £750m of AUA and c. £190m of AUM, respectively. The acquisitions with raise Hurst Point Group’s total client assets to nearly £8bn.

Investec Wealth & Investment announced it had agreed to acquire Edinburgh-based Murray Asset Management. Originally an investment management department within Scottish law firm Murray Beith Murray, it was spun out as a separate entity in 2008 and has since grown to 20 employees providing the bulk of its clients with discretionary portfolio management services.

Wren Sterling bought Oxford-based Critchleys Financial Planning, adding 300 clients and £150m in AUA in its second acquisition since Wren Sterling’s secondary management buyout by private equity firm Lightyear Capital late last year. Progeny announced plans to acquire Edinburgh-based Chartered Financial Planners, Balmoral Asset Management, to bring its AUM to over £6.5bn. Clifton Asset Management completed the acquisition of Burnett & Reid Wealth Management after receiving significant funding from specialist lender Boost & Co. Aberdeen-based Burnett & Reid is an independent financial advice firm with c. £180m of client assets. One Four Nine acquired Glasgow-based APC Financial Solutions & Consultancy Services, marking its fourth acquisition since launching in October last year and increasing its AUM to c. £650m across 2,000 clients. Cabot Square Capital-backed MKC Wealth acquired Cheshire-based Genius Wealth Management with 300 clients with c. £150m of assets.  Kingswood completed the purchase of Smith Pearman and Associates, which looks after over 240 clients with over £70m assets under advice in the Surrey and Hampshire region.

Among the discretionary fund managers, Titan Wealth agreed to buy Poole-based Baggette Asset Management which currently has £180m of AUM, including the Mazarin Fund range. As part of the deal, Titan will form a strategic partnership with Baggette Wealth operating as a retail distribution partner. The acquisition brings Titan Wealth’s total AUM to £5.2bn.

In the asset management space, Foresight Group, the infrastructure fund and private equity manager, agreed to acquire Infrastructure Capital Holdings for up to A$140m (£79.6m). Based in Sydney, Australia, Infrastructure Capital Holdings provides investment management and asset management products and services to an established client base of domestic and international institutional investors.

It was also rumoured that investment bankers Rothschild have been appointed to find a buyer for the private equity arm of abrdn, which has £14bn of AUM.

Lending

July was another quiet summer month for the lending M&A markets.

Mortgage Advice Bureau completed the previously announced acquisition of a 75% stake in Fluent Money Group, a telephone advice mortgage broking provider, for £73m. Pivotal Growth, a joint venture between Pollen Street Capital and LSL, made its fourth acquisition, a Southp

Challenger bank Oxbury raised another £20m from its existing and new investors following a £31m funding round in March.

Elsewhere in the sector, embedded finance provider Sonovate completed a £165m securitisation deal with BNP Paribas and M&G Investments.

Source: IMASinsight

We track the details of every deal in the UK financial services sector to provide us with insights into who is buying and the prices being paid. The charts contained in this review summarise the findings.

The first half of 2022 has been relatively unexciting. This contrasts with the current political scene exemplifying the adage that “a week is a long time in politics”. Private M&A transactions (rather than quoted company transactions), which the great majority of deals are, typically take between 6 and 12 months to complete and this means that the level of announced deals tends to be relatively stable, albeit we have commented in the past about the peak in Q1 2021 driven by a fear of CGT increasing.

The figures above would look very different if expressed as a percentage of the total population of companies in each sector. Looking at groups with values in excess of £5m, we estimate that the Investment sector is over 3 times the size of the General Insurance sector (the Lending sector on this basis is some 30% larger than the insurance sector). Seen in this context the Insurance sector is undergoing a far higher rate of consolidation, which is happening across the board. The Investment sector consolidation is happening at pace but within particular sub sectors such as wealth and fund management.

The relative scarcity of available assets has seen prices of insurance businesses climb significantly. In all three sectors we see the rate at which existing companies are acquired significantly outstripping the creation of new entities. A significant factor to starting a financial services business are regulatory hurdles. An unintended consequence (and benefit for some) of greater regulations is the increase in capital value of businesses within the sector, albeit this impact takes many years to manifest itself.

Insurance

June was a busy month for UK Insurance M&A with 12 new transactions to report on, the second highest monthly total to date in 2022 (after March, where the end of the tax year is invariably a catalyst for private sellers), with deal activity in the month overwhelmingly focused on the commercial broking segment.

The two largest deals in the month saw another transformational deal for Howden, which acquired US-based TigerRisk Partners in a $1.6bn transaction that will enhance its reinsurance and capital markets capability, and the acquisition of The Clear Group by Goldman Sachs Asset Management in a secondary private equity transaction that sees Clear’s previous backer ECI Partners divesting after four years.

Six separate consolidators were responsible for eight of the commercial broking transactions announced during the month. Global Risk Partners announced the acquisition of Prescott Jones in Wales and, via its hub broker County Group, Taylor Francis, which has offices in Newport and Aylesbury. J.M. Glendinning made another two acquisitions in Scotland with a deal for GS Group, a leading independent broker based in Perth and, via investee business Greenwood Moreland, R C McLeish, a broker in Lanarkshire. Other broking consolidators active during the month included the aforementioned Clear Group, which announced the acquisition of ProAktive in Yorkshire, and PIB Group, which announced a deal for health and wellbeing specialist Balens in Worcestershire. US brokers were also active, with Arthur J Gallagher announcing the acquisition of Erimus Group, expanding its presence in the North East, and Acrisure acquiring Russell Scanlan in Nottingham.

Finally, two other broking deals saw Lloyd & Whyte announce the acquisition of Naturesave Policies in Devon, and Jukes Insurance in the West Midlands acquired North Warwick Insurance Services.

Investment

M&A activity across the investment sector continued apace in June, despite the recent volatility in equity markets.

US-based private equity firm Lovell Minnick Partners acquired a majority stake in London & Capital, the London-based wealth manager for domestic and international high-net-worth and ultra-high-net-worth individuals. Private equity backed professional services firm Progeny announced the acquisition of The Fry Group, a business covering tax, estate and financial planning services, bringing its total AUM to £5.5bn. Hawksmoor Investment Management, part of the Hurst Point Group, which is backed by US private equity house The Carlyle Group, acquired Salisbury and Harrogate-based Gore Browne Investment Management. Lumin Wealth acquired South East-based Ashridge Financial Management, adding £85m in AUM. Marygold & Co, a subsidiary of US listed firm The Marygold Companies, acquired Northampton-based Tiger Financial & Asset Management for a total of £2.4m including net current assets, adding £42m in AUM. It was also reported (yet again) that Caledonia Investments is set to put 7IM up for sale in the autumn, seeking a valuation of about £400m for the firm.

In the asset management space, UK-listed AssetCo acquired Edinburgh-based SVM Asset Management for £11m, adding £586m in AUM. Dual-listed asset manager Janus Henderson Group announced the sale of its £1bn Janus Henderson Property Fund to an undisclosed buyer. Foresight Group acquired the technology ventures division, including the management, of Downing’s Venture Capital Trust and Enterprise Investment Scheme businesses, that have a combined AUM of £275m, for an initial consideration of £13.6m.

LSE-listed Abrdn acquired a stake in platform and wealthtech software firm Nucoro, while Australian-listed FNZ led a Series-A investment in fintech start up Bondsmith.

Elsewhere in the sector, Lloyds Banking Group acquired Cavendish Online, a leading UK protection provider, for £12m.

Lending

In a relatively quiet month, Barclays Bank acquired specialist lender Kensington Mortgages for £2.3bn from private equity firms Blackstone and Sixth Street. In a further development, investment management firm Pimco bought £5bn of Kensington Mortgages’ residential loan book, a part of the portfolio that Barclays did not purchase.

In the challenger banking space, Starling agreed to buy a £500m mortgage book from specialist lender Masthaven in a move to further expand its mortgage portfolio. SME challenger bank Allica secured £25m in funding from its existing investors Atalaya Capital Management and Warwick Capital Partners and a £30m debt facility from British Business Investments.

Elsewhere, Fintech lender Uncapped acquired Sugar, a specialist finance provider for gaming and digital apps.

You should not believe everything that you read in the press (and certainly not everything that appears on social media).

Recently, one of the mid-sized accounting firms announced they had provided corporate finance advice on a transaction. This came as a surprise to us – and as news to the buyer. In reality, they had only provided behind the scenes tax advice. However, there is a serious point here; what you read about M&A in the press is normally true (if you discount the “merger made in heaven” bombast) but is only a somewhat partial truth.

By definition, it is only (typically) the successful M&A deals that are reported on. The setbacks, the legal hitches, the regulatory obstacles, the VAT issues and HMRC clearances, the share buybacks from 20 years ago that were not correctly documented, the EMI scheme that was not properly filed; the list goes on and on. All go unreported. Most can be resolved over time; occasionally they are fatal to the deal. And whilst one assumes these issues only relate to the seller, they can also impact the buyer, forcing them to withdraw. When Zurich withdrew its interest in a takeover of RSA in 2015 it was generally assumed the issues laid with RSA.  As it turned out, the reasons for pulling out in fact lay with Zurich.

As sellers will typically only read in the press about transactions that have successfully concluded, they can convince themselves that their own sale will be simple. Towards the end of a process they often ask us “is every deal this difficult?”. To which the normal answer is that this one has been relatively straight forward!

The job of an adviser, amongst other things, is to guide their clients through what is typically a pretty testing process. Like the Mounties, we typically get our man deal in the end, but bringing our experience to bear when things do not go smoothly is a key part of what we do – just don’t expect to read about it in the press.

One often hears about businesses whose performance suffers after sale due to the inevitable distraction. This is invariably significantly greater for those who have chosen to advise themselves and can materially impact any earn-out.

We are always delighted to share our experiences of the good and the bad.

Insurance

The month of May saw a slight uptick in UK Insurance M&A activity, with ten new transactions to report on, nine of which were in the broking segment.

The largest announced transaction in the month was the much-trailed end to the long-running saga surrounding Lloyd’s broker Tysers, whose US private equity owner has been seeking an exit for some time. A suitor has finally been found, with the news that Australian AUB Group will acquire the business for a reported £500 million, with a back-to-back JV arrangement that will see fellow Australian PSC acquire a 50% stake in Tysers UK Retail business.

In commercial broking, Global Risk Partners demonstrated that it was business as usual following their recent announced takeover by Brown & Brown, with no fewer than four new acquisitions. The first of these was direct, with the acquisition of Durham-based Castle Insurance Services (North East). The others were made by three of GRP’s ‘hub’ brokers – County Group acquired Marsh and Co in Leicester, DCJ Group acquired SM Commercial Insurance Brokers in Chesterfield, and Marshall Woolridge acquired Bush & Associates in Huddersfield.

Among the other broking consolidators (although note that none of the consolidators actually like to be referred to as ‘consolidators’ any more …) Ardonagh announced the acquisition of PI specialist Alice Castle, Clear Group announced it had agreed to acquire London-based broker Centor Insurance & Risk Management, and James Hallam owner Seventeen Group added Torbay Insurance Services (TIS), building out its presence in the South West.

Lastly in broking, the recent run of broking M&A deals in Scotland continued, with Perth-based GS Group announcing it had acquired Strathtay Insurance Brokers in Dundee.

On the Insurance Services side of the market, specialist loss adjuster QuestGates announced it had completed the acquisition of structural engineering consultancy Structural Surveys in Warrington.

Finally, on the carrier side, in our March newsletter we reported that listed specialty insurer Randall & Quilter was to be acquired by Brickell Insurance Group in a £482m deal backed by US investment firm 777 Partners. In a twist to the tale, in May Brickell announced that it was pulling out of the agreement, citing a “material breach” by R&Q and sending its share price sharply downwards.

Investment

The investment sector saw continued M&A activity in May, predominantly driven by further consolidation within the wealth management and financial planning space.

Canaccord Genuity completed its purchase of Punter Southall Wealth in a £164m deal first announced in December. Canaccord’s private equity backer, HPS Investment Partners, will invest a further £65.3m into the business as the acquisition completes. Law firm Irwin Mitchell expanded its wealth management division with the acquisition of Cheshire-based TWP Wealth, adding £100m to its £1bn in assets under management. Schroders-backed Benchmark Capital acquired Derry-based Waterhouse Financial Planning, marking its first acquisition in Northern Ireland and its 27th overall. Benchmark will take on £120m in client assets, bringing its total client assets to £2.1bn. Kingswood made its fifth acquisition this year, buying Lincolnshire advice firm Vincent & Co for £421,000, adding £25m in client assets. AIM-listed wealth manager consolidator Team plc acquired Jersey-based financial planning and investment consultancy business Concentric, for an initial £1.7m in cash, plus a deferred consideration of £800,000 in new Team shares. Mattioli Woods-owned wealth manager Ludlow Wealth, acquired Glasgow-based wealth firm Ferguson Financial Management in a deal worth up to £1.2m. Brooks Macdonald bought Nuneaton-based adviser Integrity Wealth Solutions, adding £250m in AUM and Fairstone acquired Cumbria-based Financial Concepts, with more than £135m of AUM. Hybrid advice firm Aventur bought South Woodford-based JPSL Financial Services, adding £130m in AUM. Leicester-based Westerby Investment Management bought the client book of the independent financial advice company, Blythin & Brown Financial Solutions from Mountsorrel-based general business insurance broker Blythin & Brown Insurance Brokers.

Mid-market private equity investor Palatine announced a significant investment in the Doncaster-based retirement adviser, My Pension Expert, which has a team of 65, to help accelerate the company’s growth plans.

In the asset management space, Franklin Templeton bought the London-based international credit specialist Alcentra Asset Management from BNY Mellon. The deal will see the US asset manager absorb the company, which has $38bn (€35.4bn) in assets under management mainly in European credit and private debt, as well as senior secured loans, high yield bonds and private credit.

Pensions consolidator Chesnara completed its acquisition of insurance and long-term savings provider Sanlam Life & Pensions UK. The transaction was initially announced in September last year when Sanlam UK Limited said it would sell its life and pensions business for £39m, which covers approximately 80,000 policies and £2.9bn of assets under administration.

It was reported that Nucleus is in the process of selling its discretionary fund manager ‘Nucleus IMX’, which formally launched just a month before the advised platform was bought by James Hay with the help of private equity fund Epiris.

Lending

The largest transaction in May was the acquisition of Premium Credit, a provider of premium finance for commercial and retail insurance products and other specialist lending solutions, by private equity firm TowerBrook Capital Partners. The deal, which is expected to complete in the second half of the year, is reported to be worth over £600m.

In the challenger banking sector, neobank Kroo landed £26m in a Series B funding round and digital start up Recognise Bank secured a £8.7m capital raise from its existing shareholders to support continued business lending.

Growth capital funding start up Bloom Financial Group raised £300m in a Series A funding round led by Credo Capital Partners and Fortress Investment Group. London-based fintech consumer lender Creditspring secured £48m to expand its subscription lending business model.

Elsewhere, Pivotal Growth, a joint venture between Pollen Street Capital and LSL Property Services, agreed to acquire The Loan Partnership, a specialist second charge mortgage and bridging finance broker, for an undisclosed sum.

Many of our clients who are seeking to sell their business will have come to us having previously responded to a direct approach from a buyer and engaged in (protracted) discussions that in the end came to nothing. It is very clear to us that many more get sucked into such discussions and find themselves in a process that, whilst not optimal, is one that they can convince themselves is “good enough”.

In the January introduction to the M&A newsletter I discussed how in a period of rising valuations, one-to-one negotiations typically leaves the seller short changed.

But price is just one element of a larger issue: which side is controlling the process?

A direct approach that comes with the “assurance” that a deal can be finalised in three months is typically followed by the signing of a (mutual) NDA and the exchange of information. The reality – more often than not – is that after three months there is not even a firm offer on the table. How does this happen?

In responding to a direct approach, the business owner allows the potential buyer to control the process. The “mutual” NDA will not allow the owner to talk to third parties, so they feel obligated not to disclose details to potential sources of advice. Furthermore, the commitment to provide the buyer with information is essentially open ended. Far more is disclosed than necessary for the tabling of an offer and as a result the exposed owner feels vulnerable – “better the devil you know” and all that.

Critically, the seller is operating to the buyer’s timetable. Requests for a firm offer may be met by a request for yet more information.

When advisers run a sale process, they work with their client to select the parties to approach. They determine what information is to be supplied, how and when the prospective buyers meet with the owner, and exactly what is to be discussed. There will be a very clear deadline by which an interested buyer has to table their offer. And the contents of that offer will be clearly prescribed, to reduce any scope for ambiguity, misunderstandings or wriggle-room.

From the outside it can be difficult for a seller to differentiate between buyers, but they will come with very different DNAs, scale, ambitions and capabilities. It is also important to recognise that these factors can change – often quite rapidly and dramatically. A buyer of your business today can be selling their own business tomorrow.

As industry experts, our clients are able to access years of accumulated knowledge and an up to date understanding of the M&A landscape.

Responding to a direct approach is easy, but more often than not, it is storing up problems for later.

Insurance

After a busy March, M&A volumes in UK Insurance in April were markedly reduced, with fewer than a dozen new deals to report on.

In commercial broking, the two most headline grabbing deals saw Howden acquire SPF Private Clients, the Cabot Square backed group active across mortgages, wealth management and insurance, and, a few weeks later, Aston Lark (whose own acquisition by Howden has now completed) acquire UKGlobal, the broking group backed by former Oval CEO Phillip Hodson. Hodson was of course succeeded at Oval by Peter Blanc, now of Aston Lark. The two deals together will add more than 230 new heads to the wider Howden Group.

In other broking deals, JM Glendinning continued its recent run of deals with Greenwood Moreland Insurance Brokers, entering the Scottish market just a few weeks after Partners& announced its first deal there. In Wales, GRP-owned County Group acquired Archenfield Insurance. In Northern Ireland AbbeyAutoline announced that it had acquired Brian McGurgan Insurance (which trades as BMG). Nuneaton-based broker Needham Insurance acquired Baldersons in Sheffield. Finally, commercial property group Mason Owen & Partners announced that it had sold its owned Chartered Insurance Broker – Mason Owen Financial Services – to the existing management team, via an MBO.

In the MGA & Wholesale segment, Landmark Underwriting announced two new deals, the first for specialist teacher replacement business City & General Direct (which trades as SchoolsUK) in Leeds, and the second for a specialist commercial property underwriting team, whose name has not yet been publicly disclosed.

In Insurance Services, household claims management outsourcing business SBS Insurance Services announced that it had acquired the business of Independent Inspections.

Lastly, although not an April deal (it happened in December 2021 but was not publicly announced), Lloyd’s broker Channing Lucas & Partners filed accounts for 2021 revealed that it is now 90% owned by Inflexion-backed commercial broking consolidator DR&P Group.

Investment

Private equity continued to dominate its involvement in the sector with Nordic Capital announcing the acquisition of national advice firm Ascot Lloyd from Oaktree Capital Management. Also, another large advice group, Foster Denovo, announced it had secured up to £100m of funding from US-based investment manager Crestline Investors.

Elsewhere in the wealth management market, Saltus Group bought Bushey-based NSL Wealth, adding £160m in AUA. Perspective Financial announced the acquisition of Huntingdon-based Ramsey Financial, adding £50m in AUA. Private equity-backed Skerritts acquired Geoffrey Craig Limited and Saffron Wealth Management, adding a combined £150m in client assets. International insurance broker Howden, which is also supported by private equity, announced the acquisition of SPF Private Clients, extending its wealth management and mortgage broking proposition. It was reported that NatWest Group is weighing an offer for Tilney Smith & Williamson, currently owned by Warburg Pincus and Permira.

Among the asset managers, Schroders completed the acquisition of a 75% shareholding in Greencoat Capital, one of Europe’s largest investment managers dedicated to the high-growth renewable infrastructure market. US-based investment firm Stephens, acquired a 20% stake in Crux Asset Management. Tatton Asset Management bought a 50% stake in 8AM Global Limited for £7m, with the option to acquire the remaining 50% at a later date.

Lending

Credit management service provider Lowell Group acquired debt resolution firm Hoist Finance UK, in a transaction valued at £370m. The transaction includes the operations of Hoist Finance UK and its entire unsecured non-performing loan portfolio, comprising of over 2 million consumer accounts, primarily in the credit card and personal loan sector.

Starling Bank raised £130.5m from its existing investor base, giving it a pre-money valuation of over £2.4bn. Peer-to-peer property lender Blend Network secured £120m of committed capital from a consortium of six large family offices. Digital lender Jaja Finance announced that it had closed a £120m initial investment from KKR and TDR Capital in a bid to expand in the consumer credit market.

In the SME lending space, Praetura Group, a Manchester-based debt and equity capital provider, acquired a Chester-based recruitment financial specialist Zodeq for an undisclosed sum. SME digital financing platform Stenn raised $50m giving the London-based fintech a value of $900m and Capital on Tap secured a $200m investment from HSBC and Värde Partners.

What a difference a year makes
We track the details of every deal in the UK financial services sector to provide insights into who is buying and the prices being paid. The charts contained in this review summarise the findings.

The marked peak in M&A volumes in Q1 2021 is easily explainable; fear that Capital Gains Tax (CGT) would be increased in the Budget. In that quarter almost as many general insurance businesses were sold in the preceding twelve months. What is less clear is why this wasn’t the case the other subsectors where, although deal volumes were up, the increase was marginal. In part this is explained by the fact that in the Investment and Lending sectors more of the deals were corporate to corporate rather than private owner to consolidator – where CGT is an important influence on sellers.

In Q1 2022, volumes were significantly down on the quarterly average of 2021. I could give you a list of macro-economic reasons. But don’t overlook institutional failure. The FCA have been struggling to authorise changes in control in a timely fashion. In the past we have had applications approved in less than three weeks. We are now seeing our deals waiting over three months.

Valuations have moved considerably since the March 2021 Budget; upwards. We would be delighted to meet and discuss pricing and market conditions generally. We look forward to hearing from you.

P.S. We are not tax advisers but we meet those considering selling who have missed out on a simple bit of housekeeping. CGT did not go up in 2021 but Entrepreneurs’ Relief had already been greatly reduced (and renamed Business Asset Disposal Relief) a year before; the lifetime allowance being reduced to £1m and the ownership period increased to two years. If you are contemplating selling in the medium term, do consider making a simple tax-free transfer of some of your shares to your spouse. It could save you £100k – and more if CGT were to rise.

Insurance

After what has been a rather muted beginning to the year for UK Insurance M&A, March saw a considerable jump in activity, with the highest number of announced deals since March 2021, and the largest single transaction by value on the insurance distribution side since Marsh’s acquisition of JLT in 2018. (note: the list of deals below covers all announced sector M&A, whereas the charts in this newsletter only cover transactions valued at above £5m, hence the greater number of deals noted in this section.)

Grabbing all of the headlines in the month was of course the announcement that Global Risk Partners is to be acquired by Brown & Brown, the listed US broker whose entry into the UK market at scale has been widely predicted for some time. GRP has been the most active buyer of UK insurance distribution businesses by volume since 2016 and it will be interesting to see if this level of activity continues under their new ownership.

The number of UK acquisitions by PE-backed commercial broking consolidators has slowed in recent months, but March saw J.M. Glendinning announce the acquisition of both Astute Insurance Solutions in Northampton and The Sphere Group in Newcastle, and Aston Lark adding Braddons, a specialist broker with expertise in areas including construction and real estate. PIB Group, who have been busy making overseas acquisitions, announced its first UK broking deal in more than six months, with the acquisition of Guest Krieger, a specialist Lloyd’s broker best known for placing Israeli business into the London market. Partners& also made a notable acquisition to extend its footprint into the Scottish market, announcing that it had acquired the MacDonald Group.

Among the less well-known buyers in commercial broking, West Midlands based Think Insurance acquired Sovereign Insurance Services (Langley), and Heath Crawford & Foster (HCF) announced two new acquisitions, Merenda & Co in Southend-on-Sea, and the general insurance division of Essex Financial Management, based in Leigh-on-Sea.

There were two notable MGA deals during the month, with ambitious US group Acrisure announcing that it will acquire Volante Global, an international MGA platform encompassing a number of different brands, and KGM Underwriting (part of A-Plan, which is itself part of Howden … are you keeping up?!) acquiring motor specialist Eridge Underwriting Agency.

In Lloyd’s, Bermudan insurer SiriusPoint announced that it had sold its managing agency Sirius International Managing Agency (SIMA) to Mosaic and also agreed to invest in Mosaic Insurance, as part of a wide-ranging strategic partnership. Separately, listed private equity investor B.P. Marsh & Partners announced that it has acquired a 40% interest in Denison & Partners, a start-up Lloyd’s broker established by Alasdair Ritchie.

In personal lines, short term motor insurer Tempcover announced that it had agreed to be acquired by RVU, the owner of Uswitch, Confused.com and Money.co.uk

There was a flurry of deal activity in the Insurance Services sector during the month. Motor-claims focused insurtech Automated Insurance Services (AIS) was acquired by US data analytics firm Verisk, Sedgwick acquired UK Assistance 247, a home emergency repair fulfilment services business, and US firm Fortegra Group completed the acquisition of ITC Compliance. In loss-adjusting and claims handling, Gallagher Basset UK acquired third-party claims administrator Claims Settlement Agencies, Woodgate & Clark acquired specialist media adjuster Spotlite Claims, Questgates acquired Amedeo Adjusting, and Claims Consortium acquired loss adjuster Roger Rich & Co. Finally, the aforementioned PIB Group also added to its Health & Safety business with the acquisition of Baily Garner (Health & Safety).

Finally, listed specialty insurer Randall & Quilter announced that it is to be acquired by Brickell Insurance Group in a £482m deal backed by 777 Partners, a US investment firm.

Investment

March finished another quarter of buoyant M&A activity in the Investment sector with a number of high-profile announcements, including Royal Bank of Canada’s £1.6bn recommended offer for Brewin Dolphin to create a combined wealth management group with some £64bn of AuM in the UK and the Channel Islands, and Aviva’s acquisition of Succession Wealth for £385m, adding approximately 200 planners and £9.5bn of client assets.

Also in the wealth management market, private equity-backed Amber River announced the acquisition of Cheltenham-based HDA, adding £380m of client assets. Another private equity-backed group, Verso Wealth Management, announced the acquisition of Sunderland-based CDC Wealth Management with over £150m of client assets. Lumin Wealth, 50.1% owned by Swiss financial service company VZ Group, acquired Hertfordshire-based Enhance Wealth Management, increasing its client assets to around £800m and eight shareholder employees at East Yorkshire-based Informed Financial Planning bought a majority stake from founder Kevin Ferriby.

Among the asset managers Gresham House announced the disposal of its entire 23.7% shareholding in Rockwood Realisation Plc, for £8.5m in cash. Sarasin & Partners bought Bread Street Capital, adding private markets investment and product structuring capabilities to its platform. It was also reported that Liontrust Asset Management would pay £51.4m less for Majedie Asset Management, as the former’s share price has fallen since the announcement of the transaction.

Elsewhere in the sector, HPS Investment Partners acquired a controlling stake in the combined platform group made up of Nucleus and James Hay, with the existing private equity owner Epiris retaining a minority interest, and SS&C Technologies concluded its previously announced acquisition of B2B investment platform Hubwise Securities. Aspira Corporate Solutions, a subsidiary of LEBC, acquired employee benefits firm Demna Consulting.

Lending

In the consumer lending space, Lendable secured £210m in equity funding from Ontario Teachers’ Pension Plan Board, valuing the business at £3.5bn. In a bid to accelerate its growth, Nottingham-based consumer lending specialist Oakbrook Finance raised £142m from JP Morgan and alternative investment advisory firm Atalaya Capital Management.

Fund manager Elliott Advisors acquired a majority stake in specialist lending group Enra Specialist Finance from Enra’s management and Exponent Private Equity. Mortgage Advice Bureau agreed to acquire a 75% stake in Fluent Money Group, a telephone advice mortgage broking provider, for £73m. Challenger bank Oxbury raised £31m in its third funding round and acquired its strategic IT partner Naqoda.

Finally, Secure Trust Bank sold its debt purchase business Debt Managers to Intrum UK Finance. Under the transaction, Intrum acquired rights as lender to a portfolio of 650,000 customer loans.

“It is a hugely difficult decision”; a few words from an email I received from a business owner a couple of weeks ago, about the decision of whether to sell or not. Quite rightly it is indeed a hugely difficult decision; most business owners have committed a large chunk of their life in building their business into what they are today. But the difficulty also explains why many business owners end up making poor choices around that decision.

Business owners will often frame the question in the terms of “to sell, or not to sell”. But in reality, it is usually about when to sell, rather than if. The decision is a complex one because it is not purely financial. Will a sale disrupt my business? Will my health and enthusiasm for work continue? What will I do with myself after I have sold?

The shift from being a “holder” to a “seller” does not happen overnight. Some elements of selling may be very appealing; the certainty of knowing your family future is secure versus the fear of what to do following a sale. The fear of this change is in part why people expend so much more effort in the business than thinking about or planning their life after or outside it.

Poor choices? Appointing an adviser is a serious commitment. It is a clear expression that one’s business is for sale. It will involve some upfront costs (actually typically quite small, but will Susan in accounts put 2 and 2 together?). Much easier just to respond to a direct and unsolicited approach from somebody who you already know, sign an NDA and provide some information. Unwittingly one becomes drawn into discussions. In the beginning it all seems so easy. But then suddenly one finds oneself talking about an offer, there is a price and a structure, then exclusivity. It becomes hard to pull out. Have I got a full offer? Is the buyer the best for my business? Will the earn-out work?

Buyers will all admit – perhaps through gritted teeth – that sellers should always be advised. They confess to us that they “have a little party” when they find a seller who is unadvised. And what do those buyers do when they come to sell themselves? They appoint an adviser to create competitive tension and secure the best deal.

Business owners need to stay focused on managing their business, especially if there is an earn-out. By taking the difficult decision of talking to an adviser early on – indeed ideally some years before they actually come to sell – ensures crucial decisions lead to good choices. Buyers have extensive deal experience. Most sellers do not. Working with the right adviser puts them in charge of the process.

Insurance

After a muted January, February marked another quiet month for UK Insurance M&A with only six new announced transactions to report on.

In commercial broking, Global Risk Partners – itself the subject of quite a few headlines during the month owing to rumours that PE backer Searchlight, who invested in GRP in 2020, is now seeking an exit – announced the acquisition of Hamilton Fraser, a broker best known for its expertise in Landlord and Cosmetic Insurance and employing more than 200 staff. Specialist Risk Group also announced its second deal of 2022 with the acquisition of Hamilton Leigh, a commercial broker in Borehamwood with expertise in the motor trade and the technology sectors.

In the Lloyd’s market, wholesaler BdB, which includes the Mithras Underwriting businesses, announced that it had agreed to sell its operating companies to Brown & Brown Inc., the leading US brokerage firm. Brown & Brown is perhaps not familiar to everyone in the UK market, but is a top 10 broker globally with aspirations to do much more here. Watch this space.

There were two transactions involving Health Insurance businesses during the month, with Aston Lark announcing it had acquired Healthwise Group in the West Midlands, and GRP-owned Premier Choice Healthcare acquiring the trade and assets of Amba Care & Wellbeing

Finally, it was reported that AXA UK&I had acquired the renewal rights to Ageas UK’s commercial business for £47.5m, with around 100 Ageas UK employees to transfer to AXA as part of the deal. The transaction will see Ageas UK focusing on its personal lines businesses going forwards.

During February IMAS published its UK Insurance Distribution Annual Review for 2021. The 65-page report provides the most comprehensive analysis of recent sector M&A and market structure available anywhere. The report can be downloaded as a pdf here.

Investment

The Investment sector saw continuing consolidation activity, especially in the wealth management sector, but also in asset management. The newly launched DFM consolidator, Titan Wealth, acquired Harrogate-based independent stockbroker and private client investment manager, Cardale Asset Management, adding £1.5bn in AUM. AssetCo acquired Revera Asset Management for £2.8m, as part of its plan to establish an active equities business, adding £118m in AUM. M&G acquired TCF Investment to become a provider of model portfolio services and Carphone Warehouse founder David Ross bought a 10% stake in WH Ireland, the listed wealth manager and corporate broker.

In the IFA sector, Kingswood made a trio of acquisitions, buying Joseph Lamb, Aim Independent and Allotts Financial Services for £15.3m, £3.6m and £2.5m respectively, while Perspective Financial completed the acquisition of Beanland Financial Services and Progeny announced the acquisition of RU Group, expanding its presence in south Yorkshire and the east Midlands.

Elsewhere in the sector, FNZ secured $1.4bn in new equity funding from Canada Pension Plan Investment Board and Motive Partners, valuing FNZ at more than $20bn. Private equity group Cinven acquired International Financial Group, a life insurance provider of cross-border, long-term savings products, with £19bn in AUA.

Plenty of rumours circulated in the market, including that Brooks Macdonald approached 7IM’s controlling shareholder, Caledonia Investments, about a takeover of the investment manager and platform provider towards the end of last year, valuing 7IM at £300m, which was rejected. It was also rumoured that Tilney Smith & Williamson is planning an up to £3bn sale or IPO, as its private equity owner Permira seeks an exit.

A couple of proposed transactions were also called off. Mutual insurers Royal London and LV= ended talks about a possible merger, just two days after both companies confirmed they were in discussions. Also, after having agreed its £3.7m acquisition of Morgan Financial Group Holdings in January, Tavistock Investments announced that it had terminated the deal and will therefore not complete it.

Lending

In a relatively quiet month, Atom Bank raised £75m in new equity from BBVA, Toscafund and Infinity Investment Partners. The financing round saw the bank valued at £435m as it gears up for an initial public offering next year.

In the property sector, Selina Finance, a London-based Home Equity Line of Credit (HELOC) fintech business, raised $35m in equity from Lightrock and $115m in debt from Goldman Sachs and GGC. Peer-to-Peer property lending platform Blend Network, secured £10m in a late-seed round of financing from a group of existing and new investors. Beaufort Capital and Pollen Street Capital formed a strategic joint venture to provide senior debt finance to high quality real estate developers.

Elsewhere, Pepper Money closed its largest residential mortgage-backed securitisation (RMBS) to date, backed by £450m of mortgage loans. Arbuthnot Latham signed a three-year, £250m strategic loan origination agreement with Aeon Investments for commercial real estate lending.

It is something of an irony that when prices of private companies are rising rapidly, as they are across much of the financial services sector, the sellers of private companies often miss out. Typically, they seldom realise this. That is arguably a good thing, as it lets them avoid suffering seller’s remorse which could blight their retirement.

The reason for this is of course simple. The market for private companies (if it can be called such a thing) is extremely opaque. Transaction details are subject to confidentiality and the individual buyers have no interest in letting it be known that prices have shifted decisively upwards.

Prospective buyers can also be blindsided by this, as their experience and insights are often limited. In a competitive auction they only know their offer was unsuccessful, not how many offers were above them, or indeed just how far off the pace their offer was. Just this week we were summoned round to meet with the CEO of a major acquirer, to talk about where current deal pricing is. In a recent process we had included them in we had had to explain that his firm’s offer was so far away from the highest bid that we could see no real benefit in giving them the opportunity to revise it upwards.

Our clients do not suffer seller’s remorse. For a short space of time our clients are incredibly well informed as to the state of the market. A number of carefully selected buyers will have presented to our clients and submitted offers which we will have unravelled. If a client does not select the highest offer, and occasionally they don’t – they know exactly how much money they have left on the table.

In a time of sharply increasing prices, an unadvised client might be pleased with the additional 5 or 10% above what he or she believes to be the ‘going rate’, not realising that an additional 15% has been left on the table. And in real terms the seller may be worse off. The forces pushing up prices of financial services businesses are pushing most other asset classes too. Say equities and house prices (both highly transparent markets) are both up 20% – the unadvised seller of a private business who hasn’t kept up with current pricing and sells too cheaply may actually be losing out.

Today, more than ever, sellers need a well-informed adviser.  If you don’t believe me, ask the buyers who approach you a simple question: when they come to sell their own business will they respond to direct and unsolicited approach, or use an adviser to run a competitive auction process? There is only one answer.

Insurance

The new year got off to a relatively muted start in January, but there were a number of noteworthy new broking and MGA transactions being announced.

Early in the month, network business Movo Partnership announced that it had acquired three small commercial brokers, namely Chiltern Insurance Group in Reading, FLS General in Essex, and Kidd Insurance in West Lothian. Rural specialist H&H Insurance Brokers also acquired Tynedale Insurance Services in Northumberland.

Among the more regular buyers of brokers, Global Risk Partners Yorkshire hub business Marshall Woolridge acquired the business and assets of Goldthorpe Insurance Brokers in Rotherham, and Clear Group acquired Kent Insurance Brokers in Ashford (also a trade and assets deal). Xenia Broking, the credit insurance specialist owned by Nexus Underwriting, continued its recent run of deals with the acquisition of the Trade Credit & Surety business of Lloyd’s Broker Tysers, and Specialist Risk Group added a London-based Special Risks team from Bridge Insurance.

In the only private equity deal of the month, CBPE Capital announced that it had made a minority investment in Direct Commercial (DCL), the leading commercial motor MGA based in Chelmsford. Also in the MGA space, CPP Group UK announced that it had acquired London-based travel specialist Alpha Underwriting, previously part of the Tedaisy Insurance Group, and Beat Capital Partners, announced the sale of Tarian Underwriting to Corvus Insurance, a provider of smart commercial insurance products powered by AI-driven risk data.

Finally, Arthur J. Gallagher announced its first UK deal of 2021 with the acquisition of Devitt Insurance Services, a personal lines brokers focused predominantly on motorcycle and motorhome insurance.

Investment

In the asset management sector, River and Mercantile Group (RMG) finally reached an agreement with Martin Gilbert’s AssetCo for a £98.8m all share transaction in which RMG’s shareholders will own 41.6% of AssetCo’s shares and will also benefit from the recent sale of RMG’s solutions arm to Schroders through a £190m return of capital. M&G agreed to acquire a majority stake in Zurich-based impact investor ResponsAbility Investments in a bid to expand its international presence and sustainable investment capabilities. Along with Poste Italiane, M&G also invested in the £44.1m funding round for MFM Investment, trading as MoneyFarm, an online wealth management platform.

Elsewhere in the wealth management space the consolidation of IFAs showed no signs of abating with Succession Wealth buying Pannells Financial Planning, adding £1.4bn in client assets, and Oxford Advisory Partnership, with £175m of assets. AIM-listed Tavistock Investments took a 21% stake in a national adviser firm LEBC for £10m and acquired Morgan Financial Group with over 1,500 clients and £500m of assets under advice. Schroders’s Benchmark Capital completed the acquisition of the remaining stake in Redbourne Wealth Management, adding £310m of client assets. Verso Wealth Management, backed by private equity firm Cairngorm Capital Partners, acquired a chartered financial planning firm Pavis Financial Management with £280m of assets under advice. Fairstone announced two further acquisitions, East2west in Nairn and Brantwood Financial Planning in Huddersfield, bringing a total of £400m of assets into the group. Kingswood acquired two Yorkshire-based financial planning firms, D.J. Cooke (Life & Pensions) and Allots Financial Services for a total consideration of £4m. An Edinburgh financial planning firm Tweed Wealth Management acquired its Inverness-based rival John Home Wealth Management for an undisclosed sum.  Exeter-based Shipman Group bought MHA Monahans Wealth Management in a strategic move to bolster its presence in the South-West of England and national advice and fund management firm One Four Nine Group acquired Total Wealth Planning with £240m of assets.

Elsewhere in the sector, workplace savings fintech firm Cushon Creative acquired Creative Benefits Solutions, the manager of Creative Pension Trust, and investment platform Tillit raised £3.6m in a seed funding round.

Lending

January was a relatively quiet month for the lending M&A markets. In the challenger bank space, Tandem Bank acquired a Manchester-based consumer lender Oplo in a bid to expand its green lending capabilities. The transaction will bring Tandem’s total assets to £1.2bn and broaden a range of its consumer lending products. However, Masthaven Bank announced its exit from the UK banking market over the next two years citing a lack of long-term capital investment as a reason. Digital bank Monzo received a minority investment from a Chinese technology giant Tencent and Bank North, a fintech-enabled bank, secured £1.6m in crowdfunding campaign. In addition, it was reported that Shawbrook, owned by BC Partners and Pollen Street Capital, had entered into discussions with pension funds and private equity firms in relation to a potential £2bn sale.

In the property sector, a mortgage lender disruptor Generation Home secured £1bn in debt financing from Waterfall Asset Management. The funds will be used to grow the business and lend to more first-time home buyers. Arrow Global acquired a significant minority stake in Maslow Capita, a provider of non-bank development finance. The investment will help Maslow to capitalise on opportunities in real estate finance in the UK and Europe.

Elsewhere, Belmont Green, parent company of Vida Homeloans, raised £400m in a securitisation deal from both owner-occupied and buy-to-let mortgages.