In an announcement to the London Stock Exchange, both Nationwide and Virgin Money said their boards believed that if the acquisition went ahead it would “combine two complementary businesses”. 

This would result in a group with assets worth around £336.3bn and lending of approximately £283.5bn. The possible acquisition would make the two the second-largest provider of mortgages and savings in the UK. 

Nationwide said it remained committed to being a building society and felt the takeover would allow it to “accelerate its strategy” as well as offer its products and services faster. The mutual also said the return would support its financial strength. 

The lenders said the merger would provide good value to customers, adding that taking on Virgin Money’s mortgage portfolio of £57.1bn and deposit portfolio of £67.3bn would enable Nationwide to expand in core lending and deposit markets. 

Nationwide said this would also strengthen its position as a leading provider of mortgages, savings and current accounts. 

The mutual also said Virgin Money’s credit card and business banking divisions would be beneficial to the business. 

Integrating the businesses 

Nationwide said Virgin Money would be integrated into the business over multiple years, with the latter operating as a separate entity within the Nationwide group in the medium term. It would have a separate board of directors and banking licence during this part of the process. 

The Virgin Money brand is expected to be retained in the medium term, then set to discontinue over a six-year period following the acquisition, then undergo a rebrand. 

Nationwide said it did not intend to make any “material changes” to the 7,300-strong Virgin Money workforce in the near term and would safeguard existing employee benefits. 

Virgin Money’s customers will not automatically become members of Nationwide, but the combined customers “would benefit from the enlarged range of products and propositions on offer”. 

Nationwide said its range of financial services and products diversified its income and allowed it to pass this on to customers through better pricing and service. 

The Virgin Money board said it noted the opportunity to benefit from Nationwide’s scale and pace of investments, while Nationwide would make use of Virgin Money’s capabilities and strengths. 

An exciting opportunity 

Debbie Crosbie, chief executive of Nationwide Building Society, said: “Importantly, Nationwide will remain a building society, and a combined group would bring the benefits of fairer banking and mutual ownership to more people in the UK, including our continuing commitment to retain existing branches, as part of our ‘Branch Promise’ and leading levels of customer service. 

“We believe the combination would create a stronger and more diverse business that will be better-placed to deliver value to our members and customers, both now and in the future.” 

David Duffy, chief executive of Virgin Money UK, added: “This potential transaction with Nationwide represents an exciting opportunity to build on the significant progress we have made in becoming the only new tier 1 bank in recent history. The combined scale and strength would expand our customer offering and complete our journey in the banking sector as a national competitor.” 

In its most recent set of results, Virgin Money said it had seen a positive start to 2024 and reported a “strong Q1” performance.

The lender’s parent company Redwood Financial Partners has signed a heads of terms agreement for the reverse takeover of R8 Capital Investments which is listed on the London Stock Exchange. 

As part of the plan, R8 will acquire the entire issued share capital of Redwood Financial Partners through a share-for-share exchange. This will give the shareholders of Redwood Financial Partners a majority holding in R8. 

At the same time, R8 will inject money into Redwood Bank as common equity tier 1 regulatory capital. 

The capital is expected to help the lender increase its lending capacity and provide opportunities for diversification. 

Redwood: ‘An exciting day in the bank’s history’

Gary Wilkinson, co-founder and CEO at Redwood Bank, said: “Today is an exciting day in the bank’s history. Completing this transaction would be a major step forward for us, providing an excellent opportunity for Redwood to raise more capital, grow and diversify. 

“I am incredibly proud of what the bank has achieved in the six years since launch, and I am confident about the next stage of our journey. We have an enviable network of intermediary partners, a driven team, and robust infrastructure to maximise future opportunities.” 

John Stobart, legal counsel at Redwood Bank, added: “While this represents a key opportunity for the bank, it remains subject to, amongst other things, definitive terms being agreed and the completion of legal and financial due diligence and regulatory approvals.” 

In the six months to June 2023, the bank’s unaudited figures showed a record profit before tax of £2.8m and a 7.4 per cent growth in its lending book. Its net interest margin also improved from 3.3 per cent to 5.13 per cent compared to the year before. 

A news report from Sky News said the lender has appointed financial services firm BNP Paribas to table an offer for the Co-op Bank. 

The Co-op Bank has reportedly been seeking a buyer since April this year, and Aldermore is said to be up against Shawbrook, Paragon Banking Group and OSB in a bid to acquire the lender. 

Last month, Sky News revealed that Shawbrook was seeking a merger deal with Co-op Bank in an agreement worth £3.5m. Shawbrook has recently expanded its profile following the buyout of specialist lender Bluestone Mortgages. 

Shawbrook declined to comment on this offer.

According to Reuters, Co-op Bank has given a deadline of October for potential buyers to make a bid. 

Its most recent results for the first half of 2023 showed that the Co-op Bank had completed £1.52bn in new mortgage completions and delivered a profit before tax of £61.8m. Its performance was relatively flat on the same period in 2022. 

Last month, it agreed to purchase Sainsbury’s Bank’s mortgage portfolio comprising 3,500 customers with balances of around £479m. 

Both the Co-op Bank and Aldermore declined to comment when approached by Mortgage Solutions. 

This follows an announcement made in March, where the mutuals entered a legally binding agreement to transfer Manchester’s engagements to Newcastle. 

The merger will be effective from 1 July and was carried out in accordance with the Building Societies Act 1986. 

Manchester Building Society has 11,000 members and £200m in assets. As of 31 December 2022, it employed 44 people and had no branches. 

Newcastle Building Society has 345,000 members, making it the eighth largest building society in the UK. It has £5.3bn in total assets and employs 1,400. 

In its full-year results for 2022, it announced that it completed £1.1bn in gross mortgage lending. 

Paul Lynch, chief executive of Manchester Building Society, said: “Following rigorous due diligence, a formal process, and the confirmation of the merger from the PRA, we are delighted that Manchester Building Society members and our Manchester colleagues can look forward with certainty and optimism to the opportunities presented as part of a larger, financially robust society.” 

A spokesperson for the mutual said: “Paul Lynch’s employment will transfer to Newcastle on 1 July 2023. From this date he will not be employed as an executive director but in an integration capacity for a number of months. In this capacity Paul’s knowledge and expertise will be invaluable in facilitating a smooth integration.” 

Andrew Haigh, chief executive of Newcastle Building Society, added: “This merger is important in maintaining a strong building society sector in the UK and provides clear benefits to both societies. Newcastle Building Society is a purpose-powered, growing organisation with an ambitious strategy for the future. 

“The Newcastle board, executive team and colleagues across the business look forward to welcoming the members of Manchester as full members of Newcastle. We also look forward to welcoming our new Manchester colleagues as we work together towards our continued growth and success, listening to our members, and driving the value that our members want to see.”

Reacting to the completion of the deal, Lewis Shaw, founder of Shaw Financial Services said it would be interesting to see how Kensington Mortgages grows with the “funding power” of Barclays. 

He added: “With Kensington’s systems and service levels, I can imagine they will become a lender to be reckoned with.” 

Rhys Schofield, managing director at Peak Mortgages and Protection, said it was good news for borrowers as they would have access to a lender who could deal with “real-life lending scenarios” with the backing of a major bank. 

Skills transfer 

Riz Malik, director of R3 Mortgages, echoed this, saying that Kensington Mortgages would make the most of its new funding opportunities while maintaining its independent brand presence. 

He also praised the specialist lender’s service, adding: “Barclays can also benefit from Kensington’s streamlined process and use of technology.” 

Amit Patel, adviser at Trinity Finance, said the access to cheaper priced funding should enable Kensington to provide “a better product offering, with a lower rate and competitive fees”. 

Patel agreed that Barclays would have the advantage of using the specialist lender’s systems and processes, describing this as a “win-win” for borrowers. 

Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, added: “I’m hoping that Kensington’s systems, know-how and service standards rub off on Barclays and not the other way around. Kensington will be a good fit within the Barclays empire.  

“With little overlap between markets, it gives Barclays access to instant growth and market share without competing with itself or exposing the Barclays brand to higher risk business.” 

He continued: “The knowledge and skills at Kensington in terms of specialist underwriting could be a real win, too. Kensington in turn gets access to a funding line that will allow them to expand and challenge in the specialist mortgage market like never before. It will be interesting to see how well the two work together in the coming months and years, as well as seeing if any other big brand high street players make moves on any of the other specialist lenders.” 

High street lenders eyeing new markets 

Other brokers shared Taylor-Barr’s sentiments, such as Malik who said this could be the start of high street lenders taking advantage of the greater profit margins seen in the specialist market. 

Lee Johnson, director at Willow Private Finance, said: “Competition between lenders has increased dramatically in recent months and it will be interesting to see how this acquisition shakes up the market further.  

“The requirements for specialist advice and access to specialist lending are only going to increase in this evolving market and, on the face of it, it seems like a smart move by Barclays.” 

One broker was less convinced. 

Gary Bush, financial adviser at MortgageShop.com, said this was bad news, referring to Barclays taking over the Woolwich building society in 2000. He claimed that this resulted in a decline in service levels. 

Its update to the London Stock Exchange said under the possible all share offer, PCF shareholders would have a minority position in the combined group. 

The group includes the subsidiary PCF Bank, which offers bridging loans, asset finance loans and retail banking services. 

It also has the brands The Asset Management Corporation and PCF Business Finance, which issues development finance loans, SME loans and lends to property investors. 

The announcement was made without Castle Trust’s approval and the bank declined to comment when approached by Specialist Lending Solutions. 

PCF said Castle Trust should announce its firm intention to make an offer for the group by 28 June or confirm that it will not bid for the company. 

The announcement commenced the offer period according to market regulatory rules. 

PCF’s losses soften

PCF also announced its financial results for the year to 30 September 2021. It reported a statutory loss of £3.1m, which was a softening of the £5.1m loss it saw in 2020. 

New loan origination amounted to £187m, down from £272m the year before. 

The group also announced that the suspension of the trading of its shares ended on 1 April. This was temporarily halted last year after it delayed the publication of its financial results. 

At the time, it said it was unable to publish audited results due to “logistical reasons”. 

PCF shares resumed trading at 7p, giving the company a market capitalisation of £21.3m. 

LV General Insurance was acquired by Allianz in 2017. Last year saw the firm brought into the Allianz Personal division following a restructure to separate the commercial and retail aspects of the wider business. 

LV General Insurance also includes Legal and General’s General Insurance division, which it bought in 2020. 

Ahead of its launch this month, LV worked with intermediaries to further develop its service and products and has since added 27 enhancements to its plans. 

This includes the addition of trace and access as standard – a feature which helps homeowners track the source of any leaking pipes. LV said this was something which was regularly asked for but not commonly available. 

The business also has a learning and development team, comprising of employees Jill Carter and James Gittins. Their roles are to educate brokers on the best way to create conversation around protection with clients. 

As well as core home and landlord insurance products, LV will offer SmartQuote, a feature which provides quotes on home insurance after just five questions. 

Simon Hird, partnerships director at LV General Insurance, said: “We’re thrilled to be launching our LV branded products in the intermediary market, which is a first for the brand.

“We’ve worked incredibly hard behind the scenes over the last couple of years to create this new service, but our people remain at the heart of what we do, and it’s the same team here to support our partners and advisers. 

“Our innovation, expertise, and support for advisers in the market is one of the main reasons why intermediaries choose to work with us. Our aim is to make it as easy as possible for advisers to do business with us. I look forward to continuing our relationships with existing partners and I want to thank them for their ongoing support. I’m incredibly excited about the journey ahead as we evolve and bring more new partners on board.” 

Tom Murphy, managing director at Fenchurch Advisory Partners, which has advised on major transactions in the mortgage sector, including L&C’s sale of a stake to Experian in 2017, said: “For a private equity firm, mortgage broking looks like an industry ready for consolidation. The market is buoyant and it’s a good time to sell.”

Meanwhile Olly Laughton-Scott, partner at Imas Corporate Finance, which has a track record in advising general insurance broking firms on transactions, said: “We are seeing a bubble in pricing. Prices are very strong at the moment because you have such low yields – people are desperately trying to find yield. 

“And, with the anxiety that capital gains tax rates will go up, now is a good time to realise,” he said.

Quality of business

For broking bosses who may be tempted to sell, the advisers suggest being aware of several key considerations.

The first and most significant factor a buyer will look for is quality of business, with a big part of this being about repeat business.

Laughton-Scott said: “If you can demonstrate you’ve built a loyal customer base over many years, and can say, of the business we’ve done this year, 70 per cent is repeat business, and 20 per cent from personal recommendations, that shows you’ve got a quality business.”

The key is to monitor where business comes from and to capture that information. Often this is done by using a customer relationship management platform and proactively monitoring renewal dates. 

Distribution relationships can be seen as enhancing quality too. However, beware lead generation arrangements that are based baldly on marketing spend. These are less attractive to buyers because they themselves could advertise to acquire business rather than buy a firm.

The second angle for a buyer is what are the business owners’ plans for when the sale is completed? Particularly where founders are in their fifties or younger, buyers tend to consider it a danger that the seller will re-enter the market and lure away staff and customers.

Murphy said: “For founder-led businesses, the intention of the founders after the sale is as important as customer relationships. Buyers will typically expect founders to stay, drive growth and help transition relationships to other people in the newly combined group.”

Most buyers will negotiate covenants to restrict sellers from starting up again. For owners in their fifties and sixties, these arrangements can take the form of retirement solutions where a lump sum is paid on completion followed by a payout spread over three to five years. 

“It’s important that any seller goes into it knowing exactly what they want to do after the transaction. If sellers are young, that’s probably a hurdle,” said Laughton-Scott. 

“Most buyers would probably look for you to stay in the business,” he added.

Compliance challenge

A third element of transactions – which has gained importance in recent years – is the ability of target firms to demonstrate high compliance standards. 

Laughton-Scott said: “When someone comes to buy your firm, if there are failures of compliance, there is an obligation on the buyer to report those to the Financial Conduct Authority (FCA). So it’s very, very important that people focus on ensuring their compliance is to a high standard.

“If compliance is very poor, the buyer will not proceed,” he said.

With the FCA’s focus on quality of advice, the emphasis when selling is on ability to demonstrate this. “Make sure your house is in order and you have all the right documentation to show the client journey. Your client files need to be sufficiently detailed and up-to-date,” Murphy said.

He added that emerging risks such as data protection and cyber risk are also increasingly under the microscope in retail firms’ takeover deals.

Productivity metrics

Finally, the target firm’s financial records will be under scrutiny from buyers. 

Profitability has become the key measure for a buyer when assessing the value of a firm. Ebidta (earnings before interest, tax, depreciation and amortisation) is the preferred profitability measure of private equity firms.

Management accounts will show how revenue and costs are evolving, as well as key productivity metrics.

While metrics vary by size of business, they typically include revenue per adviser, lead conversions to completion, repeat business percentage, protection product penetration rate, operating costs and margin.

Revenue per adviser remains a significant measure, but has become less used as a valuation tool in recent years as business practices have become more transparent.

Where buyers paid multiples of income in the past, based on the assumption that they could increase fees, this is now less true.

The final point on valuations is that business owners should try not to be distracted by the prices paid for fintech firms.

Laughton-Smith said: “Fintech is very distorting. People look at them and think, ‘well if they’re worth that, I’m worth this.’ But what they are selling is a completely different proposition. In most cases, those propositions may well fail, but there will be some who will be unicorns and that is why they attract such values.”

Both advisors added – as any good mortgage broker themselves would say – that to get the best deal, it’s a good idea to take advice.

Countrywide also revealed that private equity investor Alchemy Group returned with an improved offer after its first one worth around £90m was rejected by shareholders last month which promoted two senior executives to leave the board.

Countrywide shares rose eight per cent to 244p in early trading although this is still down from the 355p in January and far below the £296 per share at its peak in March 2014.

The improved Alchemy deal would offer to buy some Countrywide shares at 250p each, matching Connells valuation, but would restrict which shareholders were allowed to sell their stakes.

Alchemy would also inject £70m into the struggling business through new share issues – split equally between two share purchases by Alchemy of Countrywide shares at 225p and 100p.

Alchemy would also want the new Countrywide business to be reduced to the standard stock market listing taking it off the premium listing.

This would mean the firm would only need to meet minimum EU equivalent regulatory standards, instead of the tougher premium requirements of listing and corporate governance.

The offer includes many conditions, including Alchemy being able to negotiate a write down of Countrywide’s £50m loans with its lenders and agreement that Alchemy would own more than half the share capital when completed.

“The revised Alchemy proposal would enable shareholders who wish to realise their investment in Countrywide to sell their shares to Alchemy Partners, while also enabling those shareholders who continue to believe in the potential of Countrywide to retain their existing stake and, if they choose, invest further capital,” the Countrywide statement said.

The board will now discuss the revised offer with Alchemy Partners and all major shareholders.

Regarding the Connells deal it added: “Following a thorough review of the possible cash offer with its advisers, the board has unanimously rejected the possible cash offer.”

Connells response

The announcement of an improved deal from Alchemy prompted a swift response from Connells which said the Alchemy bid remained a “highly conditional” transaction and urged Countrywide shareholders to “take no action” on it.

“Connells is considering its options regarding the possible all-cash offer for Countrywide it had announced on 9 November 2020 and re-confirmed on 23 November 2020 and urges Countrywide shareholders to take no action in relation to the possible revised Alchemy proposal,” Connells said.

It has until 5pm on 7 December to decide whether to announce a firm intention to make an offer for Countrywide or to announce that it does not intend to make an offer.

A Sky News report confirms Atom Bank is in talks to appoint Citi to advise its board on options for the business.

Atom Bank said it doesn’t comment on ‘rumours or speculation.’

The appointment, which is expected to be confirmed shortly, comes almost 12 months after Atom Bank raised £149m from investors in March last year led by BBVA, Spain’s second-biggest lender.

Under the shareholder agreement, BBVA, which owns nearly 40% of the Durham-based digital bank, has an option to acquire the remainder of the shares.

The Sky story stated sources close to Atom denied that hiring Citi represented a “sale mandate” although they conceded that either a takeover, further equity fundraising or stock market listing was likely during 2019.

Atom Bank hit £2bn in residential mortgage lending in December last year.

Atom Bank also rebranded its consumer mortgage lending arm last year to Atom Mortgages after a legal dispute was resolved with All Types of Mortgages (AToM).

Maria Harris (pictured) said: “We retain a great relationship with Vic and Dale [Jannels] and wish them continued success with their new brand.”

The packager has been operating under its own new brand ‘impact specialist finance’ from the start of 2019.