Bank backing is unusual in the broker market, as private equity remains the dominant source of capital
By Content Director Saxon East
Goldman Sachs has placed its bets on Aston Lark, which is the top acquirer of brokers this year amid a scramble by business owners to sell their firms before tax rises hit.
The bank has shown its track record of successful investing in UK insurance firms.
In 2013, it acquired a 50% stake in Hastings for £150m.
When it floated two years later, the market cap was £1.1bn. By any standards, getting more than 300% returns is a good investment.
Now the banking giant is backing Aston Lark, having completed an estimated £320m purchase 18 months ago.
The deal has made Aston Lark a much more powerful beast than when it was with its previous owners, Bowmark.
There were rumours last year that Aston Lark could become even larger via a merger with the Brendan McManus-run PIB Group, in a consolidation of the consolidators, but the deal never came to light.
For now, it appears Aston Lark will be leading the chase for brokers along with GRP and emerging players such as Warranty Group.
Banks versus private equity
The IMAS mergers and acquisitions update also shows the continued power of private equity, with all the top acquirers being backed by this form of capital.
Long gone are the days of banks being the direct major provider of funds to the big consolidators.
Lloyds Bank and Halifax Bank of Scotland (HBOS) were the big backers of the consolidation model by throwing their weight behind Towergate founder Peter Cullum, exemplified by a 2008 refinance package worth £1bn.
Now it is all private equity - and brokers continue to be an alluring investment.
Brokers are consistently cash generative, have little capital expenditure, operate in a fragmented market ripe for further consolidation and the pound is still cheap having taken a battering during the Brexit years.
The UK political landscape post-Brexit is also welcoming of foreign capital - and for very good reason. As well as providing jobs and growth, it is crucial to our economic balance.
The UK runs a considerable current account deficit and, as previous Bank of England governor Mark Carney said, we are reliant on the ‘kindness of strangers’.
We need foreigners to buy our pounds - without which, sterling would sink. Imports would then become crushingly expensive, causing a huge recession.
Unless there is a gigantic political and economic earthquake which changes the paradigm, private equity is here to stay.
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