Trust companies listed on the stock exchange do very well
Bart Deconinck, group deputy chairman at Zedra, says that PE Firms can still on average generate a ROI of twenty-five percent in trust companies.
Will private equity investment change the trust industry?
As a result of PE investments the trust market is in full consolidation. The major trust firms are already owned by PE firms and the appetite for further acquisitions is increasing, for example the acquisition of Elian by Intertrust. This results in a number of very large companies comparable to the big four in the accounting industry. Whilst some clients might prefer a very large provider, this is creating room for a number of middle sized players offering tailored services to a more demanding clientele.
If there are very few potential targets, how do PE firms compete for what is available and where next?
PE firms put on a charming offensive to convince management teams. Often a very interesting long term incentive plan or shares will be offered to win them over.
If valuations are on the high side, what does this mean for the trust industry?
Valuations of trust companies have significantly risen in the last five years, but are still economically viable. The trust industry is a resilient business with great cash flow conversion and a very stable revenue profile. PE Firms can still on average generate a ROI of twenty-five percent in trust companies. In addition the growing number of trust companies being listed on the stock exchange, such as Sanne or Intertrust, has shown the stock price can do very well.
Tell us about secondary deals.
Secondary deals are transactions whereby one private equity firm buys an investment from another private equity firm. These deals happen because of a shortage of targets in the wider market. There is nothing wrong with this, but it is driving business valuations higher.
How would a bubble hurt the trust industry?
A bubble and subsequent collapse of private equity valuations would dry up available cash for further consolidation. The big companies will then be forced to grow organically by increasing the client base rather than continuing to acquire businesses.
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