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.
*IMAS Corporate Finance LLP has been acquired by MarshBerry.
