Private equity putting money in the banks

This week saw Advent International invest in Towergate Partnership Ltd, a UK-based insurance company offering underwriting, financial advice and broking, among other services. The £200m deal is one of a surprisingly rare number of large investments in the financial services by private equity funds.

Between 2006 and 2010, just 95 European financial services companies received private equity funding. This compares to over 100 consumer company buyouts in 2010 alone, while the industrials sector has seen almost 900 private equity-backed acquisitions over the past five years.

So why has private equity so often shied away from making investments in its own sector? Firstly, the size of many large financial institutions means they are simply out of reach for even the largest private equity funds, with major banks worth many tens of billions of dollars. Furthermore, financial services companies have seen significant consolidation in recent years, with banks and insurance companies buying up rivals at a rapid rate. This would result in much greater competition for assets in the sector, ultimately pushing prices up and making these companies unattractive for private equity investors.

Despite this, private equity investors have continued to show an interest in the market, albeit at a low level, and figures from unquote" Research reveal some interesting trends. Firstly, the number of deals in the segment can be seen to be climbing into 2007, with only a minor fall in 2008, indicating interest at a time when private equity was booming. This tails off dramatically in 2009, a time when many financial institutions were going bust or being propped up by governments.

However, in 2010, the number of investments in financial services jumped, rising from just 11 to 17, while value has also increased to over €4bn. The acquisition of RBS WorldPay, worth over €2bn, is largely responsible for the major uptick in market value, but even disregarding this mega-buyout, market value remains at an impressive €2bn. As the financial crisis eases, governments are now looking at their own balance sheets, and hoping to offload bank assets they had to support in 2008 and 2009. Many have chose to break up these financial behemoths, selling off non-core divisions and private equity investors seem keen to pick up these high quality assets.

Despite being a major industry across Europe, financial services might never have the same popularity as heavy industry or retail for private equity buyers. As a sector that is already highly consolidated, opportunities for buyout houses are limited. However, the recent crisis shows many are willing to put their money in financial services for the right assets.

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• Topics
• UK / Ireland
• Southern Europe
• DACH
• France
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• Financials