Some of the buyers we talk to on a regular basis recently commented that they had been sent (the same) work of fiction.
The principal driver for valuation across many UK financial services businesses is EBITDA. Whilst simply expressed, this acronym covers a multitude of sins. Historic, forecast, normalised (i.e., following the removal of non-recurring items – often “lifestyle” expenses) pre or post synergies etc. There is rarely a single and agreed upon measure of what constitutes the relevant EBITDA for valuation purposes in any business. And that is before one gets into different accounting policies around e.g., revenue recognition.
On top of this there is of course the structuring of any M&A deal; earn-outs, earn-ups, reinvestments etc. Then finally one needs to add strategic value into the mix; for example, one buyer may be very keen to stop a competitor gaining a foothold in a particular area.
Looking through this complexity, the most subjective areas are that of synergies and strategic value where the values are only known by the buyers themselves.
The work of fiction the buyers were complaining about was an information memorandum on a business for sale that not only detailed wholly unrealistic cost cutting projections but quantified supposed synergies and strategic value for a buyer and baked these into an “adjusted” EBITDA number against which prospective buyers were instructed to bid. This resulted in an uncertainty around what the real numbers are, and offers were made that discounted the numbers shown.
Buyers wish to retain all the value of synergies and strategic benefits for themselves. An effective auction process forces buyers to price in and share much of the combination benefits. This is particularly true in current market conditions. When advising sellers, our focus is to ensure the buyers have all the information they need in order to assess synergies/strategic value knowing their assessments are based on facts, not fiction.
Presenting inflated numbers also undermines the building of a crucial element of the great majority of transactions, trust. Trust is the dark matter of the M&A world. It is crucial, but difficult to measure. Trust that the buyer will not look to chip the price at the last moment. Trust that the buyer will honour the earn-out. Trust that the buyer will fulfil their wider commitments.
If one can’t trust the numbers presented, what can one trust? Hence the need to build trust from the outset and that starts with selecting an adviser that is trusted in the industry.
IMAS has been building trust in the industry for 30 years. We are always delighted to meet to discuss the hard and soft issues around selling.
Insurance
September saw another relatively quiet month in terms of UK insurance M&A volumes, albeit with a number of notable new transactions announced across a number of subsectors.
In commercial broking, increasingly active US acquirer Acrisure announced a second deal in as many months, adding Sutton Winson and Sutton Special Risks in a deal that increases the group’s UK premium to £175m. Another US broking group that has been seeking to do more M&A in the UK, NFP, also announced a new acquisition, adding Bentley Insurance Services in Staffordshire.
There were several smaller commercial broking deals in the month, with GRP-owned County Group announcing it had acquired Business Insurance Specialists (BIS), a commercial broker in Llandudno, Dickson & Co in Northern Ireland adding Armagh-based Jim Burton Insurance Services, and independent broker FR Ball Insurance in Monmouthshire announcing both a merger with Wessex Business Services to create Wessex Insurance Brokers, and the acquisition of Lawson D Jones Insurance Consultants.
In the London market, Ardonagh announced it would acquire Oxford Insurance Group from USI (a rare case of a US broker divesting a UK business), and Lloyd’s broker Servca added Medicas, a specialist provider of medical indemnity, medical malpractice and healthcare liability covers.
In personal lines, South African cycle Insurtech Two Three Bird (TTB) acquired ETA Services, a long-established specialist broker with an ethical and environmental focus and with whom TTB had an existing underwriting relationship.
On the Insurance Services side, Allianz X, the digital investments arm of Allianz, announced the acquisition of Innovation Group, whose business includes the ‘Gateway’ digital claims management platform, Stubben Edge added Helodrium, a Lloyd’s-focused compliance consultancy, and Ardonagh announced that it had acquired Stallard Kane Group (SKG), a provider of health and safety, HR, training and employment law compliance consultancy services based in Gainsborough.
Investment
M&A activity in the Investment sector was largely driven by continued consolidation in the wealth management sector, including Harwood Capital Investment Trust increasing its stake in LSE-listed Frenkel Topping to 30%, while Signia Wealth’s CEO, Carnegie Smyth, and his business partner Greg Malone bought out the company’s founder John Caudwell. Succession made its first acquisition since its takeover by Aviva, buying G+E Wealth Management, adding £800m in AUA. One Four Nine Group reached £1bn of client assets through the acquisition of Nottingham-based HFL Financial Services. Wren Sterling Group announced the acquisition of Leamington Spa-based HB&O Financial Services, adding £250m of AUA. Private equity-backed Advanta Solutions announced the purchase of London-based Genesis Financial Planning adding £150m in client assets. Cooper Associates Wealth Management acquired fellow St James’s Place Appointed Representative Pengilly Cox Financial Associates. Perspective Financial acquired Redcar-based Esk Valley Financial Services, adding £30m in AUA. London-based Engage Financial Services made its first acquisition, acquiring Kench & Co Financial Services, adding £20m in client assets. Clifton Asset Management acquired Mark Philips Ltd, a Caerphilly-based financial adviser.
Elsewhere in the sector, Nuveen, the investment manager of TIAA, acquired a controlling interest in Arcmont Asset Management a European private debt investment manager with $21bn in committed capital. Link Fund Solutions was put up for sale by its Australian parent company Link Administration Holdings amid an FCA investigation into its role in the collapse of the former LF Woodford Equity Income fund. Copper Street Capital invested in compliance consultants Thistle and Panmure Gordon made a formal offer for rival small cap specialist FinnCap.
*IMAS Corporate Finance LLP has been acquired by MarshBerry*
