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.
