Insight Bite: Buy and be bought – UK challenger banking market eyes up M&A

FirstRand, the South African financial services group, has confirmed plans for a takeover of Aldermore, the UK challenger bank aimed at SMEs. FirstRand has offered £1.1 billion in an “indicative proposal”, and the UK lender is expected to accept a firm offer at this level.

The South African bank is keen to build revenues outside of its home country, in order to spread risk away a potentially unstable political situation. Aldermore raised £226 million in a 2015 IPO, and has provided over £2 billion in new mortgage lending. Aldermore, “with its unique operating model, market positioning and strength in deposit taking, would provide the ideal platform for FirstRand to fulfill this strategy on an accelerated basis,” FirstRand CEO Johan Burger told Bloomberg.

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But the newcomers in the financial scene aren’t just here to be picked off by major players looking to diversify. As Aldermore is acquired by a bigger fish, challenger peer Tandem has decided to be the one to go fishing itself.

Earlier this autumn, Tandem announced it will buy loss-making Harrods Bank, providing the upstart with £80 million of capital. Tandem, which does not yet offer accounts to the general public, has struggled to get off the ground after £29 million funding deal from Sanpower fell through in the spring, as this setback also meant missing the licensing deadline.

The Harrods deal will however bring Tandem an instant £200 million loan book and £300 million in deposits. Tandem said the deal will accelerate its plans to offer savings accounts: “We will continue developing and rolling out our app and credit card as planned, with a little more spring in our step. When the deal is finalised, we’ll operate the whole business under the Tandem brand.”

Whether it’s to buy or be bought, the challenger banks are proving themselves to be a force to be reckoned with in the UK financial sector. We expect to see lots of interest in this exciting new segment.

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