UK bank IPO may be another stop on M&A journey
06/10/2025 10:32
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. By Liam Proud LONDON, Oct 06 (Reuters Breakingviews) - Do UK bank investors need another mid-sized lender to think about? The owners of soon-to-float Shawbrook - buyout groups Pollen Street and BC Partners - certainly hope so. They'd probably argue that superior growth and high returns could eventually justify a premium valuation relative to Paragon Banking PAGPA.L and other peers. Shawbrook's M&A prospects might be the more interesting long-term story. Pollen Street and BC appear to have been fairly good stewards of the lender, launched in 2011 and de-listed by the private equity duo in 2017. Loans and deposits have roughly doubled since 2021 without a worrying uptick in credit losses. UK bank valuations are relatively healthy these days, which means it's not necessarily a bad time for the owners to start selling, despite a dry London initial public offering market. Shawbrook's assets are relatively well diversified, spanning landlord mortgages, small-business loans and some consumer finance. CEO Marcelino Castrillo, a one-time consultant who subsequently worked at Banco Santander SAN.MC and then NatWest NWG.L, expects a "high-teens" return on tangible equity over the medium term. That could justify a valuation in the same ballpark as similarly high-returning Paragon, which trades at 1.3 times tangible book value. Based on Shawbrook's mid-year balance sheet, that would imply an equity value approaching 2 billion pounds, according to Breakingviews calculations. Castrillo might even hope for a higher multiple over time, based on his track record of growth and the business's punchy targets. Of course, IPOs tend to come with a discount. And public investors are sometimes wary of taking assets straight out of private equity's hands. It might therefore be wiser for Shawbrook to start smaller, valuation-wise, in the hope that it gives the stock some room to grow. The future, in any case, might bring some interesting opportunities. Shawbrook has been an M&A machine, completing 24 deals all told. None have been blockbuster megamergers, but it's possible to imagine something chunky happening eventually. The group lacks a current account franchise, for example, and is therefore almost entirely dependent on relatively high-yield savings accounts for its funding. Buying 800-million-pound Metro Bank MTRO.L could fix that. The two have talked in the past. Another option could be a digital specialist like Starling Bank. Dealmaking is generally easier with a liquid acquisition currency. In other words, Shawbrook's IPO could grease the wheels of its expansion. Follow Liam Proud on Bluesky and LinkedIn. CONTEXT NEWS Shawbrook said on October 6 that it was planning a London initial public offering to support its "ambitious growth plans". A float would also allow owner Marlin Bidco, a vehicle controlled by private equity firms BC Partners and Pollen Street, to sell down. Reuters reported on October 2 that an IPO could value Shawbrook at as much as 2 billion pounds ($2.69 billion), citing a person familiar with the matter. Shawbrook's loans and deposits have roughly doubled since the end of 2021 https://www.reuters.com/graphics/BRV-BRV/lgpdaymoqvo/chart.png (Editing by George Hay; Production by Shrabani Chakraborty) ((For previous columns by the author, Reuters customers can click on PROUD/liam.proud@thomsonreuters.com))