UK specialist lending bolstered by M&A activity

UK specialist lending bolstered by M&A activity

19 transactions were announced across asset, property and personal finance worth over £3bn in deal value in the first five months of 2017, according to latest research from Livingstone.

The international mid-market M&A and debt advisory firm’s research shows that the specialist lending market continued its post-referendum recovery between January and May this year with a continuation of the confidence seen in in the second half of 2016.

Livingstone’s research into the specialist lending market revealed that the 15 publicly-quoted lenders surveyed reported an average growth in loan books of 24% year-on-year, with average returns on equity remaining attractive at 19% (post-tax).

The report also found that private equity activity in the UK specialist lending market increased markedly in the first five months of 2017, with over £3bn of new capital deployed into a range of verticals, with motor finance (£1bn) and life time mortgages (£0.3bn) particularly active. Financial investors, particularly private equity, accounted for nine out of 19 deals in the period, reinforcing the strong investor confidence in the UK seen in public equity and funding markets.

Growth equity funding for disruptive business models with a focus on online and apps continued to be active, with specialist lenders, mortgage brokers and new lenders driving the growth in the sector.

Challenger banks had the best results season, enjoying an average of return on equity of 24% (post-tax). Non-bank specialist lenders also reported good results with loan book growth averaging 30%. The ‘alternative finance’ market continued its growth with Q1 2017 lending volumes 17% above the previous quarter. An increasing amount of institutional capital flowed into both the equity and loan books of peer-to-peer lenders. Well-publicised legacy issues continued to weigh on the clearing banks gaining only 3% as a group in the first five month of 2017.

Strong demand for credit was reported by lenders across consumer and business finance with several lenders entering new markets, particularly specialist property finance lines such as bridging and development.

Alex John, partner at Livingstone, said: “The specialist lending market had a very positive start in 2017, with businesses signalling a continuation of favourable economic conditions, good credit quality and growth strategies generally meeting with success. The growth in specialist lenders, and increased funding into this space, is also driving the availability of credit for UK SME’s.

“There has been strong appetite to acquire specialist capabilities and high-quality assets so far this year in the form of small lenders or brokers, and the high-quality assets in the sector remain attractive for investors.

“Post-Brexit we have seen that articulating a credible strategy for organic growth independent of market conditions is of particular importance for successful M&A deals in an environment of greater political and economic uncertainty, and we expect this to continue through 2017.”