UK financial services merger and acquisition activity post-pandemic has seen an increase in vertically-integrated purchases.
Consolidators and trade buyers have held up strongly but the rise of vertically integrated companies has become clear in the past few years.
According to data sourced by FTAdviser from Willis Towers Watson, M&A activity in the UK financial services sector at the highest level - of £80.75mn and above - has been on the rise, particularly among brokerage services looking to grow their businesses with bolt-ons.
In the lead-up to the pandemic, there was more consolidation (which WTW describes as 'horizontal deals') but in the past year, vertical integration M&A activity is neck-and neck with horizontal deals.
WTW data showed that, in 2019, the company noted four deals worth over $100mn (£80.75mn) closing in the UK while in 2022, 16 deals closed. "Therefore, an increase post pandemic", WTW said.
But it also revealed that, over the past three years, there had been a marked rise of vertically integrated companies in UK financial services.
WTW said: "During the last three years, we had 21 horizontal deals (consolidation). The other 21 deals were more about vertical, of which the majority of thefFinancials were buying smaller firms - five of which were technology firms."
The company provided a breakdown of large-scale M&A activity ($100mn and above) in the UK financial services for the past three years:
- Banks - 4
- Insurance - 5
- Closed-end funds - 13
- Finance and Credit Services - 3
- IB and Brokerage Services -16
Smaller deals
Smaller deals have also been going strong. Just this morning (April 21), FTAdviser announced that Holborn Financial had bought a Maidstone-based IFA, marking a trade deal to purchase the client bank of a retiring adviser.
According to Imas, 2021 has been a "record-breaking" year across general insurance and investment deals at the lower end of the spectrum.
Its data showed a strong pipeline of deals carried out to end of March (quarter one) this year, but there have been suggestions that a slowdown might be on the cards for 2023.
Olly Laughton-Scott, founding partner of Imas, said: "The question we are frequently being asked is whether increasing interest rates and the general uncertainly around the UK economy have impacted transaction volumes, and perhaps more importantly, deal pricing?
"It typically takes several months from agreeing the headline terms of a deal to actually transacting.
"The prices of deals being signed and announced today are often a function of decisions taken some six months or even longer ago. Serial buyers, keen to protect their reputations, are naturally reluctant to chip the price during negotiations, despite the increased pressures that many are now facing."
However, there has not been a "sharp deterioration" in market sentiment, which might otherwise lead to buyers "chipping the price".
In fact, Imas data showed that the level of UK insurance sector transactions over £5mn in value have been "above average", with trade buyers consolidating, such as Ardonagh announcing a deal for Compass network member Pace Ward in Stoke-on-Trent.
