People’s regular consumption of financial services is often buying insurance protection. Last week the FCA announced insurers will be required to offer the same terms to existing policy holders as new ones, to stop the common practice of discounting prices for new customers and progressively increase prices for customers who remain loyal.
The payment protection insurance (PPI) scandal demonstrates an important point. Bad practice can crowd out good practice. PPI made so much money for the banks that they could discount the cost of mortgages and thereby forcing other mortgage providers to follow suit. The subsequent intervention by the regulator has arguably helped ensure that good practice can compete effectively.
Regulations have other less obvious impacts which benefit business owners. This may seem counterintuitive given the costs involved. But as all providers are covered by the same requirements these costs are passed onto customers and increasing regulatory requirements raise the barriers to entry. This has retained value in established businesses and driven increasing values of many sectors of UK financial services.
Rising capital values bring benefits. A business growing in value is a more attractive investment proposition which, in itself, can contribute to additional investment in the business to perpetuate its further growth. As an example, there was historically a reluctance to invest in developing professionals in the industry as, once developed, the mobility of the professionals posed a risk of migrating business away from the sponsor. The exam regime imposed upon the industry has partially provided a solution to this structural (free rider) issue.
Business owners and senior managers generally (not forgetting M&A advisers such as ourselves), may be surprised to realise the benefits that regulation has conferred on them.
Insurance
Following a subdued April, May marked another relatively quiet month for insurance sector M&A in terms of deal volumes, albeit one that was high in terms of transaction value owing to two major transactions announced during the period.
The most active purchaser during the month was Seventeen Group, which announced a hat-trick of transactions within a matter of days. The group acquired Ipswich-based commercial broker Ryan Insurance Group, construction specialist Pinner Risk Solutions (PRS), and Christopher Rowe Insurance Brokers, the Cornish broker best known for its expertise in marine business. Both PRS and Ryan’s will become part of Seventeen’s subsidiary James Hallam.
Other commercial broking transactions included the acquisition of South West-based W H Adams & Co (trading as Town & Country) by Partners&, Howden’s acquisition of medical specialist Medical Professional Risk Solutions (MPRS), and the acquisition by Ardonagh – via Ethos Broking hub business Hugh J Boswell – of Drayton Insurance in East Anglia.
In personal lines, LDC-backed Right Choice made its second acquisition in as many months with the previously trailed acquisition of motorcycle specialist Bennetts, which was divested by Ardonagh following the well-publicised concerns raised by the Competition & Markets Authority over Ardonagh’s ownership.
In a major sector transaction, Ardonagh announced that it had agreed to acquire the insurance brokerage operations of BGC Partners in a $500m deal. The target business, collectively branded as Corant Global, comprises global wholesale and specialty re/insurance broker Ed and Lloyd’s broker Besso, as well as aviation specialist Piiq Risk Partners, MGA Globe Underwriting, and a number of overseas businesses (marine broker Junge in Germany, Epsilon Underwriting in Australia, and European MGA Cooper Gay).
In the other major transaction in the month – although not strictly a UK deal – Arthur J Gallagher announced that it had reached an agreement to acquire certain reinsurance, specialty and retail operations of Willis Towers Watson in a $3bn transaction. The divestment by WTW forms part of a regulatory remedy coming out of the pending combination between Aon and Willis that is expected to close later this year.
Finally, Accelerant Insurance, the carrier backed by Altamont Capital Partners that has been active in acquiring MGA businesses, for whom it provides continued underwriting support, announced that it had acquired Kinnell Holdings, a vertically integrated insurance group serving the UK building and remedial treatment industries.
Investment
The wealth management sector continued to be very active with Mattioli Woods announcing two acquisitions worth a total of £143.5m and a £110m equity placing to help finance them. It agreed to buy the private equity investor and alternative asset manager Maven Capital Partners for up to £100m and the North West-based financial planning business Ludlow Wealth Management for up to £43.5m, the two largest acquisitions by the group to date.
Elsewhere in the wealth management sector, the FCA approved the acquisition of AFH Financial Group by funds managed by the US-based private equity firm Flexpoint Ford in a deal worth £231.6m. Swiss financial services firm VZ Group acquired a 50.1% stake in St Albans-based Lumin Wealth with the intention to gain full control within five years. Fidelius Group acquired the specialised advice to returning ex-pats business of deVere UK, adding 28 staff and £280m of client assets and Independent Wealth Planners bought Professional Wealth Management, adding £150m of client assets. Oberon Investments acquired London-based Smythe House with £40m of AUA, while IFA consolidator Fairstone completed the acquisition of Sterling Asset Management. Worthing-based Investment Solutions Wealth Management acquired Eastbourne-based Montgo Consulting, taking its total client assets to £600m.
In the asset management sector AssetCo acquired Edinburgh-based business Saracen Fund Managers and Savills Investment Management took full control in real estate debt manager DRC Capital for up to £65m.
In the other areas of the sector, Equiniti, the listed financial and administration services outsourcing group, agreed the terms of a recommended £673m offer by the US private equity firm Siris Capital. Wealth at Work, the specialist provider of workplace financial education, guidance and financial advice for individuals, saw a secondary private equity investment from Aquiline Capital Partners. Investment bank Raymond James agreed to acquire Cebile Capital, a provider of private placement and secondary market advisory services.
It was also reported that Lloyds Banking Group was in “advanced talks” to finalise a takeover of the pensions and investment platforms provider Embark Group and the life assurer Phoenix Group confirmed it was in “advanced discussions” for a potential sale of its European business to European Life Group Holding in a deal that could be worth around £550m.
Lending
In a relatively quiet month, Arrow Global Group announced that shareholders had passed the requisite resolutions to implement its recommended acquisition by Sherwood Acquisitions, a newly formed company owned by investment funds managed by TDR Capital. Completion of the transaction, which was announced at the end of March valuing the company at c. £563m, remains subject to regulatory approvals.
Provident Financial announced its withdrawal from the home credit market, citing changing industry and regulatory dynamics. The company intends to place its home credit business into managed run-off or to consider a disposal.
Elsewhere, Begbies Traynor Group announced the acquisition of finance broker MAF Property, trading as MAF Finance, for an initial consideration of £3.0m of which £1.0m is in new Begbies Traynor Group equity. In addition, there is a potential earn-out of up to £8.75m subject to delivering material growth in profits in the four years post-completion.
*IMAS Corporate Finance LLP has been acquired by MarshBerry.
