ConsolidatorAug 31 2022

Market volatility will help our M&A strategy, says pension consolidator

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Market volatility will help our M&A strategy, says pension consolidator
Steve Murray, group chief executive at Chesnara

Chesnara, the pension consolidator which bought Sanlam’s life business, is taking advantage of market volatility to snap up companies’ portfolios as they undergo revaluations of their core businesses.

Chesnara’s group chief executive Steve Murray told FTAdviser volatile markets mean companies are more likely to look at their portfolios “in a different way”.

“Everyone would hope markets are a lot better than they are at the moment,” said Murray. “But it could give us more opportunities to look at from a M&A [merger and acquisitions] perspective.”

With £100mn set aside for acquisitions, Chesnara has its eyes on the UK - as well as wider Europe. 

There is a very long tail of portfolios and businesses in the UK.Steve Murray, Chesnara

“We’ve seen big groups, particularly international groups, looking again at the portfolios and assets they have across the world and getting a bit more focused on what is core to their strategy and what is not,” said Murray.

He referenced a “large disposal programme” underway across Europe which big insurers such as Zurich and Axa have adopted. 

“You are seeing those groups look at what they have in the UK, too,” said Murray. He referenced Phoenix’s recent £284mn acquisition of Sun Life of Canada as a good example of a big firm shedding a non-core UK portfolio.

“Conversations we’re having aren’t for whole companies, they’re for bits of companies which are less core, and started five to 10 years ago. Firms might now want to focus on asset gathering or pensions, for example, and looking for a good home for these other books.”

Chesnara is on the lookout for deals from values of around £25mn to £50mn, all the way to deals closer to the business’ market cap, which is around £459mn.

“There is a very long tail of portfolios and businesses in the UK that fit this sort of size,” said Murray. 

“We think there'll be further activity in the UK. We’re certainly having good conversations and we don’t see market volatility changing [deal] optimism.”

Some of these deals might be partnerships, the chief executive added.

Chesnara has made three appointments this year, including Phoenix’s former head of M&A Sam Perowne, as well as Dutch executives Karin Bergstein and Carol Hagh.

“We’ve put some further weight behind our leadership team to give us more senior bandwidth to scope out deal opportunities,” said Murray.

Rising rates

In February, the company issued £200mn of Tier 2 subordinated debt to fuel its M&A strategy. 

Despite rising interest rates making big debts more expensive, Chesnara raised its latest bout of cash just before Russia invaded Ukraine and UK interest rates reached nine-year highs.

“It’s a fixed coupon in our back pockets,” said Murray. “Interest rates going up tend to help insurance companies and if you look at our sensitivities, we’re in a similar place.”

In its results published today (August 31), Chesnara posted a pre-tax loss of £104.6mn, compared to a pre-tax profit of £20.8mn this time last year.

Murray put this down to a fall in equity markets which means on paper the firm’s assets are worth less. 

“We have a mismatch at this point in time. We think International Financial Reporting Standards (IFRS) is pretty meaningless for a company like ours, because what we’re trying to do is match our liabilities with our assets over time. IFRS in effect disentangles that.”

Chesnara is much more focused on cash generation, he explained. Each portfolio the firm buys, it projects cash generation.

The Sanlam life business, paired with a Dutch insurance arm it bought at the same time, are projected to generate £6mn in cash annually once they are integrated into the business.

“Our books have a long lifecycle. It’s not an immediate shot in the arm,” said Murray.

ruby.hinchliffe@ft.com