FirstRand is eyeing possible acquisitions in the UK where it already owns a specialist bank and vehicle financier, as it believes the worsening economic situation in that market will allow it to buy new businesses more cheaply to broaden its portfolio.
The group’s UK portfolio includes Aldermore, a specialist lender and savings bank that caters to small businesses and individuals, as well as MotoNovo, a vehicle financier not unlike WesBank, the SA-based vehicle and asset financing house. With UK inflation having hit double digits in July and Citibank warning it could reach 18% in mid-2023, FirstRand believes the resultant economic fallout could depress corporate valuations and allow it to pick up attractively priced businesses.
“Ironically, we could see opportunities coming through in the UK if there’s fallout in some strategic businesses that make strategic sense for us, we can jump at those opportunities,” CEO Alan Pullinger told Business Day. “If you’re going to be buying something, you don’t do so in a booming market because then it’s priced for perfection. Now valuations are coming down ... everyone is gloomy in the UK ... some businesses might run into difficulties. So if you’ve got firepower, this is the time to see what you can do.”
The UK is facing an unexpected cost-of-living crisis due to the rising food and fuel costs that has sparked fears that up to 70% of pubs and independent brewers in the country may not survive the northern hemisphere winter because of sky-high energy prices. The UK’s new prime minister, Liz Truss, has also pledged to challenge what she called the “orthodoxy” of the nation’s Treasury or finance ministry though critics have labelled her proposals, which include deep tax cuts, as potentially dangerous.
“Calendar 2023 is still quite a tough year for the UK, but we think things are going to improve quite a lot in 2024,” said Pullinger. “I’m still a bit cautious but when I speak to the management at Aldermore, they’re bullish around growing the balance sheet ... I don’t think dramatically, but they’re certainly going to hold their own. They still believe they’re going to grow.”
Pullinger says one advantage a smaller, nimbler bank like Aldermore has is the “air cover” provided by having a strong parent in FirstRand, which can leverage its balance sheet to snap up new bolt-on acquisitions to broaden its product set.
“Ironically, for Aldermore there are probably more opportunities in a UK that’s facing a tough economy,” he says. “We’re just watching to see how things play out.”
Asked what segments of financial services FirstRand may look at, Pullinger says the group is likely to look at adding services it does not already offer such as transactional products, current accounts and other banking offerings not offered by Aldermore.
“We wouldn’t really want to just buy scale. So if there was another business similar to Aldermore and all we’d do is bulk up our existing business, that’s probably not great for us,” he said. “Banking is really what we know, so it’s probably easier to bolt on. Wealth management, asset management could also be interesting to us. I think insurance probably is a stretch too far. It would probably be too distracting for us right now. Probably in the fullness of time, maybe insurance, but right now I think it would be a distraction.”
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