Shawbrook’s £2bn sale is on hold due to inflation fears and weak markets

Shawbrook private equity owners have put a proposed sale of UK challenger bank on hold after their hopes of attracting bids worth around £2billion failed to materialize, say four people familiar with the subject.

BC Partners and Pollen Street Capital, which bought the lender in 2017, had discussions this year with potential buyers.

But international investors are wary of buying in the UK at a time of political uncertainty and rising inflation, the sources said. Shawbrook specializes in lending to small and medium-sized businesses, which have been hit hard by inflation and soaring energy costs.

Choppy markets and a broader trading slump also thwarted the selloff, the people said.

It’s unclear when the bank will be put back up for sale, one said, while another said it could take 12 or 18 months before a process begins again. Private equity firms had also explored an initial public offering for the lender, but canceled that plan as well.

The decision to suspend plans comes as Britain’s economy is set to slide into recession as it grapples with the highest level of inflation in more than four decades.

‘If you look at the UK from the outside, you stop now,’ one of the people said.

According to consultancy EY, the value of deals in the UK financial services sector fell in the first half to £8.6bn, from £10.5bn a year earlier.

The challenger bank was launched in 2011 when Pollen Street, then part of the Royal Bank of Scotland, bought Whiteaway Laidlaw Bank, which was later renamed Shawbrook.

It posted a record pre-tax profit of £197m last year, up from £74m the year before. Its loan portfolio rose by a quarter to £8.6bn, while return on tangible equity, a measure of profitability, rose to 20.1%.

Pollen Street launched Shawbrook in London in 2015 with a valuation of £725m.

But Pollen Street decided to take it private again two years later with BC Partners, for £868million, after a hostile takeover. Private equity groups typically try to sell businesses within five years of buying them. BC bought its stake in the company using a fund it raised in 2017.

The deal came after Shawbrook took a £9m charge over bad debts that were uncovered in its asset finance arm, sending the bank’s shares down almost a pound. third at the time.

Despite economic headwinds, the challenger bank market is poised for more transaction activity following a series of mergers and sell-offs in recent years.

The Co-operative Bank made an offer for TSB last year, its second offer after a failed first attempt in 2013.

Shore Capital analyst Gary Greenwood said the gloomy economic backdrop could spur more business activity.

“A recession in the UK could put pressure on some of the less well capitalized and funded banks, which will likely create opportunities for stronger operators to consolidate those with attractive franchises,” he said.

BC Partners, Pollen Street and Shawbrook declined to comment.

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