The first quarter of this year saw a massive increase in deal volumes. Undoubtedly, the fear that the Chancellor was going to put up CGT after having greatly reduced, and renamed, Entrepreneurs’ Relief in the previous budget had a huge impact on certain vendors’ decisions. But, the uncertainty in the previous quarters also made forecasting future performance more challenging. That caused deals to be delayed, only to be gradually revived as the Covid cloud lifted along with the vaccine roll-out which enabled a series of deals to be concluded in the first three months of this year.
The above graph, showing transactions above £5m of value, somewhat understates what in some sectors was a dramatic spike in activity in this quarter. For instance, significantly higher volumes of transactions were agreed in the insurance broking sector than in the whole of the previous year. Similarly, the same number of deals were concluded in the IFA sector in the first quarter of this year as the total for the whole of 2020. Those are industries populated by large numbers of smaller owner-managed businesses that are controlled by individuals predominately aged over 50. Here, tax planning plays a large part in the decision making process.
While many sectors in the UK economy have clearly been heavily impacted by Covid, with specific exceptions, financial services have traded strongly throughout the pandemic. That was not a foregone conclusion last year when the FTSE 100 dropped by 32% from the middle of January to March and investors were fretting about the wider implications. But, aided by monetary and fiscal stimulus, confidence has been restored and the markets have staged a remarkable recovery, leading to the clearing of a backlog of deals to be completed.
Short-term factors should not obscure the importance of the planning for a transaction, be it in five months or five years. We are only too happy to meet you, face to face or via Zoom, to discuss what drives value and how to prepare for it.
Insurance
Q1 2021 has been a record quarter for announced UK insurance M&A, with a huge number of transactions having been precipitated by the spectre of an increase in the rate of Capital Gains Tax in the 3rd March Budget. Many of these transactions went right to the wire, completing on the 2nd March. In our February review we took a 5th March cutoff date and so many of the transactions that took place in the first days of the month were included in that newsletter. The majority of transactions below will have completed before the Budget, but were only announced after the 5th.
This applied to transactions announced by Clear and PSC Insurance, who both completed a brace of deals just before the 3rd. PSC Insurance Group acquired Leicester-based commercial broker Abaco Insurance Brokers and specialist arboriculture broker Trust Insurance Services, while Clear Group completed deals for chartered brokers and fellow Brokerbility members Luker Rowe & Co. and HIA International.
Several other commercial broking consolidators were also active. Partners& acquired Bolton-based Ives & Taylor Insurance, PIB Group acquired financial lines MGA Acquinex, Specialist Risk Group purchased specialist taxi broker Emrose Insurance Brokers, and Towergate acquired the retail arm of AFL Insurance Brokers. Global Risk Partners acquired Leeds-based Lawrence Fraser Brokers and, via its hub business DCJ Group, J E Sills & Sons. Howden Broking continued its recent run of deals with the acquisition of Sturge Taylor & Associates (STA Group), an independent superyacht broker. Xenia Broking Group, the credit insurance arm of Nexus Underwriting, announced it had agreed to acquire Status Credit Insurance Brokers, a specialist trade credit broker based in East Sussex, and London-based Costero Holdings acquired Lloyd’s broker Mar Risk Services (MarRS).
In two notable personal lines transactions, ex-Aviva CEO Mark Wilson’s Abacai Group announced that it had acquired temporary motor insurer Dayinsure, and Atlanta Group (part of Ardonagh) announced that it had acquired Marmalade, a specialist telematics broker catering for learners and young drivers.
Finally, acquisitive insurance services business Davies Group announced that private equity firm BC Partners had invested in the business, acquiring a majority stake. Existing investors HGGC and AIMCo announced that they would also remain invested in the business following the deal.
Investment
In one of the potentially first examples of a UK-based financial services firm using the SPAC route to list in the US, Kingswood Acquisition is rumoured to have signed a letter of intent to acquire Lombard International, the unit-linked assurance group owned by Blackstone with over £42bn in assets under administration. Analysts believe a deal could value Lombard International at €700m (£601m). Kingswood Acquisition listed in New York late last year and is sponsored by major shareholders in the listed wealth management firm Kingswood Group and private equity firm Pollen Street Capital.
The investment platform space saw Parmenion being bought by private equity firm Preservation Capital Partners for £102m after being put up for sale by Standard Life Aberdeen late last year. AJ Bell acquired app-based platform Adalpha to develop its smartphone offering for advisers. Pensions giant Royal London acquired digital advice business Wealth Wizards from life and pensions rival LV and retirement-focused James Hay announced the sale of its closed book of SSAS schemes to Westbridge SSAS.
In the IFA sector, AFH Financial Group received an increased offer worth £231.6m from US private equity firm Flexpoint Ford, and Ascot Lloyd secured financing of up to £100m from US-based alternative investment manager Ares Management. Tavistock Investments rejected a second approach by TEAM regarding a potential £15.2m all-share exchange offer as “significantly undervaluing” the business. Sussex-based Skerritts Consultants secured private equity backing from Sovereign Capital Partners in a deal worth £55m. New IFA-consolidator Truinvest bought NLP Financial Management and Birchwood Investment Management as part of a five-year growth strategy targeting annual revenues of £50m. Tilney Smith & Williamson expanded in Surrey with the acquisition of HFS Milbourne. Glasgow-based Chartermarque was acquired by IFA-consolidator Fairstone Group and Lumin Wealth bought Hertfordshire-based Chamberlain Stean and West, bringing its assets to more than £600m. Paradigm Norton acquired Richmond-based Tower Hill Associates and Exeter-based Clover Wealth Management. London-based MWA Financial, backed by venture capital trust provider Triple Point, bought Hampshire-based Prosperity Advisors & Stockbrokers, taking its assets to £300m.
In the wealth management sector, Craven Street Capital was created after acquiring Christchurch Investment Management and Kreston Reeves Financial Planning, totalling £850m in assets under management and advice. Saltus acquired high-net-worth specialist Consilia Wealth Management and Netwealth successfully raised £11.5m from existing shareholders and new investors.
Elsewhere, online pension provider PensionBee announced its intention to list on the high growth segment of the London Stock Exchange. Similarly, Interactive Investor is exploring a potential initial public offering this year and agreed to buy EQi, the D2C business of Equiniti Financial Services for up to £49m. Royal London bought a 30% stake in later life lending and product specialist Responsible Life and Responsible Lending, both part of Responsible Group. NYSE-listed AssetMark Financial Holdings announced the acquisition of SaaS-based financial planning and client digital engagement solutions Voyant in deal worth up to £104m.
Lending
In the challenger banking sector, Starling announced a £272m Series D funding round, valuing the company at £1.1bn pre-money. The funding round was led by Fidelity Management & Research Company, alongside Qatar Investment Authority, RPMI Railpen and Millennium Management. Zopa also announced that it had raised an additional £20m from existing investors. Elsewhere in the banking markets, Arbuthnot Banking Group announced that it has disposed of 750,000 ordinary shares of Secure Trust, raising gross proceeds of c. £8.6m, and that its subsidiary Arbuthnot Latham had completed the previously announced purchase of Asset Alliance Group Holdings for c. £10.1m. PEAC (Pan European Asset Co) Finance acquired Barclays’ Asset Finance business, comprising total assets of c. £1.15bn, for an undisclosed amount.
The boards of Sherwood Acquisitions, a newly formed company owned by investment funds managed by TDR Capital, and Arrow Global Group announced that they had reached agreement on the terms and conditions of a recommended all cash offer of 307.5p per share to be made for the entire issued, and to be issued, ordinary share capital of Arrow, valuing the company at c. £563m.
Elsewhere, MT Finance completed a management buyout by its joint founders with £8m of funding from Triple Point Investment Management. PMD Business Finance also announced a management buyout from its two shareholders and founders who will retain a minority stake and Board positions. Royal London announced it had acquired a 30% stake in Responsible Group, an equity release and later life lending broker.
*IMAS Corporate Finance LLP has been acquired by MarshBerry.
