Good morning Eurohubsters, Craig McGlashan here with the first Dealflow of the week.
It’s been a busy few days on the UK political scene and we’ve been gauging dealmakers’ reactions to the developments. But first, we look at the trend for financial services deals.
Paying off. I spoke to Jerry del Missier, founder and executive chairman of Copper Street Capital, about the London-based private equity firm’s exit from its minority investment in Italian payments firm Satispay a few weeks ago.
You can check out the whole interview here, which includes details on some of the financials as well as the story behind the original investment.
But I was also interested in what del Missier, as a former chief operating officer of Barclays Bank and now leading a financial services-focused private equity firm, thought about that sector.
For the future, del Missier sees more potential action in the payments segment.
“There’s been a lot of deal activity,” he told me. “Ultimately, there will be a tremendous amount of consolidation. We’ve already seen a great deal. It wouldn’t surprise me that the trend of consolidation continues and that you have a conglomerate of payment systems that each have particular characteristics that also utilise best in breed technology to transcend markets.
“This sector is nowhere near done in terms of the impact on the financial services industry.”
More broadly for the financial sector, del Missier sees the economy as being in the midst of a cycle change – something that creates opportunities. “It means disruption with businesses that have been predicated on growth through excess leverage who are having the chickens come home to roost with higher rates. The opportunity comes as a result of that disruption and a bit of distress. The next 18 months could be quite interesting.”
In particular, wealth management and speciality finance should be interesting, according to del Missier. Wealth management will benefit from demographics and large savings pools, and Copper Street in mid-October made its own move there by buying a majority stake in Thistle Initiatives Group.
Speciality finance opportunities could come from credit businesses that are specialised around a certain sector, or companies such as debt collection businesses, he added.
One recent example of such a deal was Pollen Street acquiring a majority stake in PAIR Finance.
Another financial services-flavoured deal was Blackstone’s partnership with Resolution Life. Check out how much the private equity firm paid for its stake here.
RBC-ing you. Sticking with financial services, CACEIS, the asset servicing banking group of Crédit Agricole and Santander, has signed a memorandum of understanding with Royal Bank of Canada to buy the European asset servicing activities of RBC Investor Services and its associated Malaysian centre of excellence. These activities include custody, global custody FX, fund administration, transfer agency, middle office and securities lending.
RBC Investor Services had €1.2 trillion of assets under administration (AuA) in Europe and €500 billion of assets under custody (AuC) in Europe at the end of March. After combining with CACEIS, the joint business would have €4.8 trillion of AuC and €3.5 trillion of AuA.
Political noise. As mentioned, the UK has gone through a bit of a turbulent time. After markets reacted badly to prime minister Liz Truss and chancellor Kwasi Kwarteng’s mini-budget – that included several unfunded tax cuts – a few weeks ago, Kwarteng fell on his sword on Friday to make way for Jeremy Hunt.
Hunt is making an emergency statement later today in an effort to reassure markets. The government has already made some U-turns on its mini-budget, including to keep an increase in corporation tax that the mini-budget was to scrap.
That increase had been priced into companies and markets when first announced, Sunaina Sinha Haldea, global head, private capital advisory at Raymond James, told PE Hub Europe’s David Wansboro.
“It was the scrapping of that and other taxes that caused the recent market volatility,” which included a drop in the value of the pound and in gilts, she added. The U-turn by the government “is a step in the right direction” for financial market stability and the proper economic functioning of industry, both of which are “critical” for private equity company growth and performance in the short, medium and long term, she said.
Other private equity players, speaking off the record, did not mince their words.
“I think the rapid changes in policy and personnel merely serve to increase uncertainty in the market at a time where stability would be valued very highly,” said a private equity head.
Other comments included that Truss’s press conference announcing Kwarteng’s departure was a “farce”, while another person said: “This is the most incompetent government in modern history and that is saying something.”
Change the channel. In potential UK dealmaking, ITV, the UK’s oldest commercial television network, is mulling the sale of its production arm ITV Studios, according to the Financial Times.
ITV Studios, behind such ever-presents of UK culture like Coronation Street and Emmerdale as well as more recent programmes like I’m a Celebrity…Get Me Out of Here! is based in London and Manchester.
The FT cited analysts and executives who estimate that the business might be worth more than the £2.5 billion ($2.8 billion; €2.9 billion) market cap of its parent.
Private equity firms could be among the potential buyers.
That’s it from me. Happy dealmaking and I’ll speak to you again tomorrow.