The last 12 months has seen the specialist finance sector continue to thrive, with more than £5bn of merger and acquisition activity, international mid-market merger and acquisition firm Livingstone has found.
The last 12 months has seen the specialist finance sector continue to thrive, with more than £5bn of merger and acquisition activity, international mid-market merger and acquisition firm Livingstone has found.
Non-bank specialist lenders dominated the activity by volume, accounting for 19 deals out of 34, driven by high levels of confidence in wholesale funding and the increasing scale of non-bank players.
Growth investment increased in terms of both numbers and scale during the period with the average deal value rising to £55m and three companies – OakNorth Bank, Neyber and Atom Bank – raising over £100m each.
Nick Field, director at Livingstone said: “The growth and returns reported by quoted specialist lenders continue to demonstrate the attraction of differentiated business models.
“Despite news headlines regarding pressure on pricing, credit quality, and rising base rates, lenders in specialist verticals have generally continued to report robust interest margins and impairment performance.
“Supportive wholesale funding markets have resulted in particularly strong performance by non-bank lenders, whose average returns on equity and quoted valuations now exceed those of specialist banks.”
In the past 12 months there was average loan book growth of 29% and an average post-tax return on equity of 16% for UK specialist lenders.
The £868m take-private of Shawbrook Bank by Pollen Street Capital and BC Partners is the largest buyout in the specialist finance sector of the current market cycle.
Total advances by UK peer-to-peer lenders surpassed £10bn for the first time in the past 12 months.
Some 60% of specialist lenders reported an increase in impairment rates, although these generally remained at modest absolute levels.
Field added: “The specialist finance market continues to be vibrant under public, private equity, and entrepreneurial ownership.
“In the last year, the combination of a strategic acquisition (Aldermore), a merger (CYBG and Virgin Money), and a take-private (Shawbrook) reduced the field of quoted ‘challenger’ banks by three, and we expect ongoing consolidation as the value of vertical expertise and differentiation continues to interplay with the efficiencies of scale inherent to balance sheet businesses.”
