Financial Services Sector Comment – July 2017

Capita’s announcement at the end of last year that it was seeking to dispose of its asset services division, as part of a divestiture programme covering several non-core business units, concluded last month in a €1,010m sale to Link Administration Holdings (The Link Group), the listed Australian technology-enabled outsourced administration services firm.

Capita Asset Services, excluding its retail banking administration and customer service operations, is the primary division being disposed of in an effort to refocus the group on core operations and to de-lever the balance sheet following several profit warnings and a shortfall on 2016 full year targets. The €1,010m consideration exceeds the initially reported information according to which the sale could yield c. €795m.

Strategic acquirers are not the only ones interested in the sector. The recurring revenue and high cash conversion typical of fund outsourcing operators lends itself to the private equity model. The popularity of these businesses amongst financial investors can be seen in the high level of buyout activity in the industry over the past number of years. Active funds in the sector in Europe include Montagu Private Equity, Inflexion Private Equity, Electra Private Equity and New York headquartered Aquiline Capital Partners.

Carve-outs of non-core administration businesses by large financial institutions and outsourcing groups, as well as the consolidation of smaller participants, have underpinned a wave of European M&A over the past number of years. Montagu’s acquisition of Frankfurt headquartered Universal-Investments from Bankhaus Lampe and Joh is one such example of the carving-out of a non-core fund administration business.

The public markets have become a common exit route for private equity buyers owning assets of scale, as competition and conflict of interest concerns can arise when global full-service custodian banks acquire an independent service provider.

Netherlands-based Intertrust N.V. floated on the Amsterdam stock exchange in October 2015 at a valuation of c. 18x EBITDA, delivering liquidity for Blackstone following its 2012 buyout of the fiduciary and fund services business. Inflexion backed Sanne Group plc also entered the capital markets in 2015, listing on the London Stock Exchange at a valuation of c. 23x EBITDA and delivering a reported 3.7x return on capital invested for Inflexion, which invested in the Channel Islands business in 2012.

Both Intertrust and Sanne Group have completed several acquisitions each since their respective IPOs. Intertrust notably acquired Jersey headquartered Elian Fiduciary Services from Electra Partners for €555m in June 2016. The acquisition positioned Intertrust as one of the leading service providers in Jersey as well as delivering strategically important competencies.

Sanne Group has also been on the acquisition path, completing five acquisitions in 2016 alone – the largest of which was the €123m purchase of Mauritius-based IFS Group, which provides a platform from which Sanne can target geographic expansion in the emerging markets of Africa and India.

Service providers to the asset management industry are expected to continue to attract both private equity and corporate acquirer interest, as established players seek accretive bolt on acquisitions and financial investors capitalise on the sectors’ underlying fundamentals and attractive public market valuations.

 

Other notable recently announced deals:

1pm acquired Positive Cash Flow Finance for €10.2m on 29th June 2017. The consideration will be satisfied by the payment of €4.9m in cash on completion, a further €2.5m in 5% loan notes redeemable in quarterly payments over the 13 calendar quarters following completion of the acquisition, commencing on 30th September 2017, and up to €2.8m in new ordinary shares at 68 cents per share based on a three year earn-out, conditional on achieving certain financial performance targets.

On the 29th June 2017 Nexus Group bought Vectura Underwriting, a Lloyd’s coverholder and specialist marine cargo MGA, from Aquila Underwriting for an undisclosed amount.

Coverys, the US-based medical professional liability insurance company, entered into an agreement to acquire R&Q Managing Agency from Randall & Quilter for €29.4m on the 23rd June 2017.

Bremer Kreditbank, a portfolio company of Apollo Global Management, agreed to acquire a 90.2% stake in German bank Oldenburgische Landesbank, from Allianz, for €300m on the 23rd June 2017.

On the 13th June 2017 Global Risk Partners acquired an undisclosed majority stake in Green Insurance Brokers, the UK-based insurance brokerage. The consideration was not disclosed.

On the 12th June 2017, a group of Danish investors submitted a voluntary offer for all shares of Vestjysk Bank, the Danish lender based in Lemvig. The Ministry of Finance has announced a conditional acceptance of the offer on behalf of the Danish State, which owns 81% of the shares in the bank. The group of investors comprises Nykredit, Maj Invest, Arbejdernes Landsbank, AP Pension, Novo, the C.L. David Foundation and Collection, ISP Pension and Vestjylland Forsikring.

On the 9th June 2017, Steadfast, the Australian listed insurance broker, announced an agreement to acquire a non-controlling stake in unisonBrokers, one of the largest independent brokerage networks worldwide. unison, based in Hamburg, Germany and Chicago, USA, has an international presence which includes 200 brokers across 130 countries and €15bn of gross written premium.

On the 7th June 2017 Banco Santander completed the acquisition of Banco Popular Español as part of a competitive sale process organised in the framework of a resolution scheme. All the Tier 2 regulatory capital instruments issued by Banco Popular have been converted into newly issued shares of Banco Popular, and have all been acquired for a price of €1.

In a related deal France-based Banque Fédérative du Crédit Mutuel completed the acquisition of a 49% stake in Targobank from Banco Popular Español on the 7th of June 2017. Banque Fédérative du Crédit Mutuel S.A. now holds 100% stake in Targobank SA.

Also in a related transaction, Abanca Corporación Bancaria agreed to acquire Popular Servicios Financieros from Banco Popular Español €39m on the 2nd of May 2017. The transaction is pending the approval of regulatory authorities.

Zopa Limited, the UK-based peer-to-peer lending platform, raised €42m in a round of funding led by new investors Wadhawan Global Capital Pvt Ltd and Northzone Ventures on the 1st June 2017.

AFH Financial Group recently announced two acquistions. The group acquired Parker Sage Independent Financial Advisers on the 31st May 2017 for €7.4m and Eunisure the following day.

On the 18th May 2017 it was announced that Onepm Commercial Finance Ltd, a subsidiary of 1pm plc, has conditionally agreed to acquire Tracx Finance Ltd (t/a Gener8 Finance), the UK-based invoice financing services provider company, for €6.7m, payable in cash.

Apax Partners France entered into exclusive negotiations to acquire Cipres Assurances from TA Associates Management, as announced on the 17th May 2017. Laurent Ouazana, Chairman of the Executive Board, Sylvie Langlois, Managing Director and their team will continue to run the business. The transaction is expected to close at the beginning of July 2017.

General Atlantic agreed to acquire a majority stake in ControlExpert GmbH on the 15th May 2017. ControlExpert provides claims management services for insurance companies, fleet operators, leasing firms, repair shops, car dealerships, automotive manufacturers, and motor vehicle experts.

Kreditech Holding GmbH announced that it has received €110m in an equity round of funding from a new investor, PayU Group, on the 10th May 2017. The investor acquired a minority stake in the target. Kreditech is a real-time scoring technology company which provides online big data scoring technology and machine-learning algorithms services to improve credit decisions.

Geely International (Hong Kong) Limited made an offer to acquire 25.7% stake in Saxo Bank A/S from Lars Seier Christensen on the 5th May 2017. Under the terms, certain minority shareholders are expected to exercise tag-along rights and by completion Geely is expected to own 30% of Saxo. The deal is subject to regulatory approvals and is expected to be finalised by the fourth quarter of 2017.

HPS and Madison Dearborn, the backers of Towergate, have agreed to acquire Chase Templeton from Palatine Private Equity on the 3rd May 2017. Shortly after, the investors announced their intention to merge Autonet, Chase Templeton, Direct Group and Price Forbes into Towergate. The new group is expected to generate €3.5bn.

Elector GmbH made a mandatory tender offer to acquire the remaining 66.8% stake in German investor in renewable energy production Clere AG on the 3rd May 2017 for approximately €69.3m. Clere AG intends to de-list after the approval from the supervisory and management board of Clere AG and is subject to approval by the executive board of Frankfurt Stock Exchange.