With last week’s Budget, the Chancellor decided to approach “balancing the books” with substantial rises in income tax (which is what National Insurance really is) and Corporation Tax, without resorting to increasing Capital Gains Tax – he is, after all, a Tory Chancellor. This is the cherry on the cake for business owners seeking to sell in the short to medium term.
For those owning businesses in financial services, the cake itself is a level of demand that is running well in excess of supply. This leaves private equity backed acquirers with a dilemma; they have to buy to meet their growth plans but, with prices being bid up, they risk being forced to give up more of the value of the synergies in the deal (as well as the potential returns they hope to achieve through ‘multiple arbitrage’ – or ‘buying cheap, selling high’, in layman’s terms) to the sellers of those businesses in order to be competitive.
As a consequence, buyers devote considerable efforts to securing “off market” transactions, where no adviser is involved and, ideally, the seller has only talked to a couple of potential buyers. Many of our clients tell us of the palpable sense of disappointment they encounter when they tell assiduous purchasers of our involvement. The day they are pleased is the day I pack up.
In the last month, a business owner told me how one particular buyer he had been engaging with had categorically assured him that, if IMAS were involved, they would not proceed. I had to laugh, as that very same buyer had called me literally the week before to complain we had not invited him into one of our sales processes. Whilst many buyers say they won’t participate in an auction, many of them would hate to miss the opportunity to pursue an attractive business.
Other similar comments by buyers include “we can do it all in three months” and “the due diligence will be light touch”. By the time the reality becomes evident, the seller has lost their negotiating power and feels they are in too deep to pull out or explore a transaction with an alternative buyer. As the saying goes, marry in haste, repent at leisure.
If there is only one real buyer for your business, it is typically a tactical mistake to try to create an auction; in doing so, you risk highlighting the paucity of purchasers to the one good buyer. But in current market conditions, if a buyer says he or she will not become involved in a competitive auction process, the truth is that they know their offer is second best.
If you’re a business owner looking to explore exit options or simply want to find out more about the market, please do not hesitate to contact us on the numbers below.
Insurance
October marked the busiest month for UK insurance M&A since the first quarter of 2021, when a flurry of transactions announced prior to the March Budget saw the volume of announced transactions spike. Indeed, excluding that spike, the last month has seen more transactions announced than in any other month since before the outbreak of Covid, with 21 new deals to report on.
The most headline-grabbing transaction last month was of course the surprise announcement that commercial broking consolidator Aston Lark is to be acquired by Howden in a c.£1.1bn deal that comes just over two years since Goldman Sachs Merchant Banking Division invested in Aston Lark. The reported high-teens valuation multiple will do nothing to dampen the enthusiasm of the various sector consolidators – Aston Lark has kept itself busy making acquisitions (25 in 2021 alone) at somewhat lower multiples; its owners have done very well in selling those entities’ earnings on to Howden at a substantially higher valuation.
Staying on the subject of eye-watering valuations, in another major deal in the month it was announced that Nordic PE firm EQT Partners will make a significant investment, alongside existing investor Vitruvian Partners, in CFC, the fast-growing MGA best known for its leadership in the cyber market. The transaction is reported to value CFC at more than £2.5bn.
There were two other MGA deals announced in October, with one being that Munich Re-owned HSB Engineering Insurance will acquire the MD Group of companies, the structural warranties specialist behind the Premier Guarantee and LABC Warranty brands, and Space and Energy specialist Occam Underwriting has acquired Beech Underwriting, an underwriting agency based in Kent and best known for its Terrorism cover.
In commercial broking, there was the usual slew of new deals, with both dedicated consolidators and a number of less frequent, privately held businesses making new acquisitions. Starting with the consolidators, Howden-owned A-Plan announced the acquisition of Watkin Davies Insurance Consultants in Wales, Global Risk Partners announced it had taken a minority stake in All Med Pro, a member of the Hedron Network that GRP acquired from Marsh UK earlier this year, the aforementioned Aston Lark added both Absolute Products in Leighton Buzzard and Bainbridge Collins in Birmingham, and US consolidator NFP acquired KGJ Insurance Services, a commercial broker based in Wolverhampton.
In other commercial broking deals, Welsh broker Thomas Carroll acquired Delywn Griffiths Insurance in Cardigan, Inflexion-backed Radius Insurance Solutions acquired taxi and courier specialist Milestone Insurance Consultants in Leeds, Irevolution Group (whose brands include Well Dunn Insurance Services) acquired motor broker BG Insurance (a trading style of Barry Grainger), Chester-based Daulby Read acquired agricultural specialist Hornby Snape Insurance Services in Macclesfield, and UKGlobal Leeds (part of UKGlobal Broking) acquired Linton Greenwood Insurance Brokers in West Yorkshire.
In the Lloyd’s market, Lockton announced that it had acquired international marine broker Edge Group, and insurer IQUW (née ERS) completed the acquisition of Agora Syndicate Holdings, which provides underwriting services to syndicate 3268.
In personal lines, it was reported that US PE firm Aquiline Capital Partners, which specialises in insurance and technology investments, and which has previously invested in SimplyBusiness and ERS in the UK, will take a majority stake in Ripe Thinking, and that specialist motor insurer Granite Group has agreed to acquire Carrot Insurance, the telematics broker, from Trak Global.
Finally, there were a number of notable transactions on the services side of the sector. Acquisitive loss adjuster QuestGates completed its fourth deal of 2021 with the acquisition of contingency specialist Focus Claim & Risk Management, FTSE 250 boiler repairer HomeServe acquired home emergency assistance outsourcing firm CET Structures, and beleaguered services group Capita plc divested its Capita Commercial Insurance Services (CCIS) and Capita Managing Agency (CMA) businesses to Marco Capital, the Maltese run-off specialist.
Investment
abrdn (formerly Standard Life Aberdeen) acquired a retail investing content platform Finimize for an undisclosed sum.
In the asset management sector, Schroders announced the acquisition of River and Mercantile’s UK fiduciary management and derivatives business for £230m. The transaction will boost Schroder’s assets by £42bn. Cardano Group agreed to acquire ACTIAM, a Dutch sustainable investment manager, and Edmond de Rothschild acquired a 42.5% stake in London-headquartered family office Hottinger Group.
In the IFA sector, the national consolidator Fairstone bought Chadney Bulgin, adding over £850m of assets and 11,000 wealth and mortgage clients. Copper Street Capital put capital behind One Four Nine Group, a new financial advice and wealth management firm run by Matthew Bugden, which launched with the acquisitions of Charter Financial Planning and Rice Whatmough Crozier with over £300m of client assets. US-based private equity investor Further Global Capital Management purchased a majority stake in financial adviser and tax firm Progeny, and national wealth management firm Independent Wealth Planners acquired Yorkshire-based financial planning firm Acuity Wealth Management which looks after 228 clients with £85m of assets. Finally, two ex-Quilter executives, Dominic Rose and Nigel Speirs, bought MKC Wealth with the backing from Cabot Square Capital.
Lending
In the banking market, Hampshire Trust Bank announced that it had agreed to acquire Wesleyan Bank from Wesleyan Assurance Society, subject to regulatory approval. Augmentum Fintech announced that it was making a further £10m investment into digital bank Zopa as part of Zopa’s latest £220m funding round which was being led by Softbank Vision Fund 2 alongside other existing investors IAG Silverstripe, Northzone, and Davidson Kempner Capital Management. The Co-operative Bank confirmed that it had approached Banco de Sabadell regarding a potential acquisition of TSB but that no discussions were currently taking place. Following the receipt of certain expressions of interest in Sainsbury’s Bank, J Sainsbury announced that it had concluded that they do not offer better value for shareholders than retention of the bank and accordingly all such discussions had now ended.
In the debt purchase market, Sherwood Acquisitions, a newly formed company owned by investment funds managed by TDR Capital, announced it had completed the acquisition of Arrow Global Group’s entire issued, and to be issued, ordinary share capital for £565m. Copper Street Capital announced that its portfolio company Lantern had agreed terms to acquire Sonex Financial which provides specialist services to vulnerable customers in arrears.
Elsewhere, digital equity loan provider Proportunity was reported to have raised new debt and equity funding of c. £105m led by VentureFriends, Kibo Ventures and existing investors Anthemis, Entrepreneur First and Amro Partners. Having acquired 40% of The Business Lending Exchange (BLX) in 2018, Manx Financial Group announced that its wholly owned subsidiary Bradburn had exercised its option to acquire BLX’s remaining issued share capital for c. £0.9m in cash plus an additional potential earn-out of up to c. £0.5m.
*IMAS Corporate Finance LLP has been acquired by MarshBerry.
