2024 can be characterised by steady deal activity, though not spectacular. The stabilisation of the debt markets was helpful, although sponsor-driven platform investment and secondary activity remains difficult to execute across the space. At c.£30bn of deal value, 2024 is likely to end some 15-20% higher than 2023.
We believe mid-market FS activity has remained buoyant as the factors that make such businesses attractive to investors have not changed, despite such market uncertainty and increased regulatory scrutiny, notably with respect to consumer outcomes.
Looking at specific subsectors:
- Wealth & IFA buy-and-build strategies continued their momentum, especially in the UK, backed by continuing access to debt, albeit the need to integrate platforms and replenish acquisition facilities has seen some consolidators pause for breath
- Insurance intermediary activity continued apace with some sizeable UK deals of note (e.g. Warburg /Temasek/Specialist Risk Group, NSM/AllClear, Markerstudy/Ardonagh) with wider efforts increasingly centred on earlier stage rollup plays across European and Scandinavian markets
- Specialty finance investments, despite macro-economic headwinds, remained active although opportunistic at best, the Pockit/Monese merger being a good example of a sector still working out how to bring together the disruptors and innovators seen in the fintech space
- Banking has seen three mid-sized takeovers (Coventry/Co-op, Nationwide/Virgin, Barclays/Tesco) as the sector starts to tidy itself up with sub-scale operators taken out by larger players
- Interestingly the other big mid-market M&A plays was the take privates of Hargreaves Lansdown and Mattioli Woods (by CVC and Pollen Street, respectively).
The one black mark on the overall FS space though is the discretionary commissions inquiry, which has had immediate effects on those with large motor books (e.g. LBG, Close), with important ramifications for the sector overall still being thought through.
However, as 2024 has drawn to a close and with debt markets fuelling further appetite for deal making, the wider FS market outlook for 2025 looks positive.
Outlook for 2025
The market is optimistic for 2025, though very conscious of the geopolitical uncertainties that lie ahead. Capital Markets remain challenged, but M&A pipelines continue to build up and should hopefully start to be opened. The following themes can be expected to emerge:
- Wealth management buy-and-build: This continues to underpin FS M&A, with perhaps half of all activity in the space relating to this. Bolt-on activity is expected to remain buoyant with many consolidators pressed to continue buying assets; meanwhile, we expect consolidators challenged by lower realization of synergies, difficult debt structures or just simple organic growth challenges to look to merge or find other solutions. The increasing scrutiny of the FCA on PE-backed consolidators also looms large over the industry
- Time to refinance: This remains a key theme, particularly relevant for buy and build consolidators as well as those in speciality finance e.g. bridge finance and working capital lenders.
- FinTech shake out: The shake out of FinTech and neo-banks, who have not scaled to or towards profitability will continue to consolidate – the Klarna IPO slated for 2025 will be the inescapable bellwether.
- PE dry powder driving deal flow: The abundance of private equity dry powder - $2.6tn globally per S&P and Prequin estimates - is expected to bolster deal flow in 2025. Despite current trading challenges, there is optimism that conditions will improve. As in recent years, this influx of private capital is expected to be a driving force behind strategic platform investments and M&A in the sector.
- Corporate disposals: Non-core disposals will continue in 2025, as corporates continue to tidy up.
- Professional services: At time of writing, this is the sector with the most attention, following the sales of Grant Thornton and Smith & Williamson – expect tech investments into those already in PE hands, while the slide rule will be run over those remaining independents within reach.
2025 will be an interesting year, for sure. The continued focus on buy and build strategies, along with the abundance of private equity dry powder and seemingly improving macroeconomic conditions does point to an improvement in deal activity across the sector in 2025.
