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