merger

Will we see more consolidation in the alternative finance market?



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It has been predicted that the pace of mergers and acquisitions between alternative finance providers will increase as economies of scale are needed to create a viable business.

The comment follows a number of acquisitions between alternative finance providers. 

Since the start of the year, RateSetter, Close Brothers and 1pm have expanded their services by acquiring specialist finance providers. 

John Davies, CEO of the Just Loans Group PLC and chairman of the Association of Alternative Business Finance, felt that at the end of the day, no matter what industry you were in, there would be consolidation and alternative finance was no different. 

“I think the pace of mergers and acquisitions will increase as economies of scale are needed in order to create a long-term and viable business.

“However, mergers and acquisition don't always pan out as the involved parties envisage, especially if it is a shotgun wedding.”

Christoph Rieche, CEO of iwoca, said it was open to mergers and acquisitions if there was a good cultural fit between the two companies, but hadn’t noticed a significant rise in acquisitions.

“…The market is very fragmented, but many operators are at [a] very small scale making an acquisition or merger less attractive.

“I don’t think it will make a big difference to competition as the market is still young and growing fast.

“The UK has a diverse set of smaller alternative lenders of which none have a significant share of the market and, therefore, it would be beneficial if one lender could create the buzz required to create real awareness among consumers.”

Osian Rees, head of block discounting at Investec Asset Finance Group, felt mergers and acquisitions had been a feature for some time in the asset finance market and expected it to continue.

“Asset finance businesses are buying brokerages to gain scale and in lots of instances to provide them with a means of writing more business on their own balance sheet.  

“Other motivations include growing their business through access to new markets or gaining the expertise present in acquired companies.”

Jane Dumeresque, CEO of Folk2Folk, felt that alternative finance acquisitions could be seen as a positive for the industry as they encouraged the best platforms to operate and rise to the top.

“An acquisition can help some platforms that may be struggling to grow – or fail to get their full permissions – ensure their existing loan book can continue to be serviced. 

“This is something we have seen in the past on a few occasions.”

Jane added that consolidation in the sector could help foster a quality market environment for the long term.

“I believe there is strength in having market specialists as they will continue to thrive and grow.  

“In Folk2Folk’s case, although we would certainly be happy to look at acquiring existing portfolios and growing through acquisition, we would only do so with businesses of similar quality to our own so as not to diminish our brand and value to clients.” 

Osian added that one key effect of mergers and acquisitions it had seen was an increase in requests for own-book funding, which has promoted a greater demand for block discounting services. 

“Asset finance businesses hoping to grow their business in this way will find greater compliance responsibilities in a tighter regulatory environment and often seek to secure wholesale funding facilities from funders that have strong market knowledge and that have an established track record of supporting the market over a long period to support their growth requirements.”

John concluded by predicting that there would be winners and losers.

“…From my experience, the winners will [be] those that have invested in the underwriting expertise and technology that enables them to streamline the application and on-boarding process.

“As those who are longer in the tooth will tell you, it’s easy to lend, it’s the getting it back that is the hard part.”

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