Broking Business Winter 2021: Continued M&A demand
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Service: Sector: Investors’ already strong appetite reinforced by Aston lark deal
Aston Lark acquisition and its impact on the market
The unexpected announcement of the £1.1bn acquisition of Aston Lark by Howden after they had recently completed two other large deals (£700m for A-plan in September 2020 and $800m for Align in August 2021) has led to the creation of a significantly enlarged Howden Group, making it one of the largest broking groups in the UK.
As well as the scale of the deal, the transaction had interesting features that may have an impact on future deals in the wider market:
- A quick turnaround from private equity (PE) investment.
Howden acquired Aston Lark after roughly two years of Goldman Sachs ownership. This is quick even for PE time frames which tend to be three to five years. The deal came off the back of significant M&A growth for Aston Lark since being acquired by Goldman Sachs. Aston Lark was acquiring right up to the deal date and this doesn’t seem to have dampened the pricing; could it have been more if the businesses were fully integrated? - Full processes not required.
We understand that the sale process was very short with only a few bidders; there was no need to go to the wider market because the firms involved really wanted the business and knew it well already. Full value was still obtained so it will be interesting to see if future sales processes for quality assets become much narrower; this may mean acquirers need to spend more time courting potential acquisition targets to ensure they are part of the process, let alone secure success.
The current state of the M&A market
The Aston Lark deal has proven that investing at each stage of the business’s lifecycle has been rewarding, with PE shareholders doing well out of their ownership. This success is another reason why investors have an appetite for this sector and that their faith in buy-and-build strategies remains strong with evident value to be made – provided that there is always a bigger fish to sell to.
We expect this considerable M&A activity to continue through to the end of 2021 and on into 2022.
Valuation
The rumoured valuation of 17 to 18x EBITDA is high but isn’t completely uncommon for the largest deals. It has, however, shown multiple growth after each PE deal. This again gives credence to the view in the market that multiples are still improving, with certain companies prepared to pay premium prices.
Covid-19 has had very little impact on these values. Once government schemes are removed, we may see more distressed assets coming to the market; however, there hasn’t been a flurry to date.
There don’t seem to be many bargains to be had, with sellers becoming much more astute about pricing, with the headline prices seen in the Aston Lark deal only fuelling expectations.