All fired up and everywhere to go

Landsbanki's acquisition of Bridgewell Group for a cool £60 million this year shows the fire in its belly for European expansion. Patrizia Rossi reports.

The Arctic ice cap may have collapsed at an unprecedented rate this summer, but here in the UK the ice is firm under foot, and looking particularly solid. Major Icelandic banks, such as Landsbanki, with limited scope for further growth in the domestic market, have set up in the UK and Continental Europe to beef up their profile and financial capacity.

Over the past two decades, Iceland’s complex regulatory environment has been streamlined, which has enabled entrepreneurship to thrive. Starting a business takes on average five days compared to the global average of 48 days, almost ten times longer.

Jonathan Brown, head of corporate finance at Landsbanki, sees the dynamic nature of Icelandic corporate culture as another contributing factor to the country’s strong economic growth. He says: “In many ways, Icelanders are instinctive when it comes to investment banking. They have a creative, fast-moving and entrepreneurial culture.”

This dynamism is clear-cut in the large and diverse international in­­vestments made by Icelandic firms, such as Baugur and FL Group in the retail, banking, and airline sectors, amongst others.

“Landsbanki has grown rapidly over the last seven years on the back of an extremely strong economy and has now begun to expand aggressively internationally,” says Brown.

And Landsbanki, Iceland’s third largest bank with assets totalling €32.4 billion and more than 30 per cent market share in its domestic market, isn’t the only one on the move. M&A activity hit a high – between 2004 and the first quarter of 2007 – of 97 cross-border deals worth €9.8 billion, according to independent researcher Mergermarket. More than half of Icelandic corporates surveyed by Mergermarket believed it likely or possible that they would conduct at least one cross-border transaction over the next 12 months. Those polled included CEOs, CFOs and managing directors from Icelandic corporates and CEOs and CFOs from international companies bought by Icelandic firms. They claimed that the UK, Scandinavia and Central and Eastern European economies were among the most favoured destinations for Icelandic acquisitions.

In 2005 Landsbanki’s strengthened its presence in the UK when it bought stock broker Teather & Greenwood. In August 2007, this position was further reinforced when Landsbanki bought investment bank Bridgewell Group for £60.3 million. The deal signalled the latest step in the bank’s rapid European expansion and resulted in Teather & Greenwood and Bridgewell merging to form Landsbanki Securities. “Bridgewell was an attractive target because it’s a high quality business of a similar scale to Teather & Greenwood as well as a good cultural fit. Landsbanki Securities is now one of the strongest players in the UK small and mid-cap market, with the potential to offer a full range of integrated investment banking products to its clients,” says Brown.

The deal was funded by 10 per cent cash and 90 per cent new issued Landsbanki shares. Landsbanki paid 125p a share for Bridgewell, 15p less than when it floated on AIM in 2006. Landsbanki has estimated that restructuring and transaction costs of the Bridgewell deal will come to around £10 million.

Owing to a number of deals that failed to complete and weaknesses in AIM share prices in the summer of 2006, Bridgewell’s profits fell from £3.4 million to £1 million. However, Brown doesn’t see Bridgewell as a high-risk acquisition: “The deal takes us into a space with larger companies than Teather & Greenwood historically worked with and broadens our M&A capabilities. From now on, we expect more of our deals to range from £100 million to £1 billion.”

In addition, the quality of Bridgewell’s client list, which includes UK Coal, Aberdeen Asset Management and Gcap Media, will strengthen the bank’s base for organic growth in its corporate and investment banking activities. “The combined businesses make Landsbanki Securities one of the largest brokers in the small and mid-cap sector,” he claims.

Brown continues: “If you look at the larger end of the market, the majority of investment banks and securities houses are integrated – they can do M&A, equity and debt. Typically few M&A boutiques and corporate broking houses have any sort of financing capability, so this gives us a big advantage over our competitors. We can offer clients informed, objective advice over a wide range of issues because we have no specific axe to grind. Until now this has only been available to larger clients.”

The starting gun for Landsbanki’s European expansion fired in 2005, when Landsbanki made a series of acquisitions: Teather & Greenwood in London, Merrion Capital an Irish investment bank in Dublin and Kepler Equities a pan-European equity house headquartered in Paris. Kepler has branches in six major financial centres in Europe.

The bank now operates in 16 countries. Brown said: “The acquisitions made over the last three years are aimed at building an integrated investment bank around the small and mid-cap sector of the market. We are building a business that can operate cross-border but at the same time is immersed in the local cultures in which it operates.”

More mid-cap deals

Brown promises more mid-cap deals, offering greater growth prospects for Landsbanki. One such deal was Landsbanki’s advisory role this year advising a consortium of Duke Street Capital, Europa Capital and Bank of Scotland in the recommended public offer for CI Traders (CIT), a retail and property group in the Channel Islands. CIT operates M&S, Safeway and a number of pubs and restaurants in the Channel Islands. The deal was worth £400 million and is typical of the type of transactions that Landsbanki works on and of which it would like to see more.

Landsbanki identified CIT as a potential target as a result of its strong market share in the ChannelIsland’s retail sector, its valuable property portfolio and a chief executive and chairman who were both approaching retirement. Brown says: “These are the kind of mid-market deals that we are focused on and aren’t necessarily on the radar of the larger investment banks.”

Since 2002, Iceland’s oldest bank has expanded rapidly and established a network of subsidiaries across Europe to become one of the largest integrated investment banks within the small and mid-cap sector. Brown admits that Landsbanki, as yet, isn’t a household name, but if its European expansion continues at its current pace, the bank will not only be the leading retail bank domestically and a major player in UK small and mid-cap investment banking, but will also cast a long shadow over Mastermind’s Magnus Magnusson and Bjork as the biggest thing to come out of Iceland.


Iceland is the fourth most competitive nation in the world, according to the 2006 IMD World Competitiveness Yearbook

• It’s GDP per capita is among the highest in the world. GDP has grown by 50 per cent in real terms in the last ten years

• It is the smallest economy in the world to have its own currency

• While fish still makes up a large proportion of exports, it now accounts for less than ten per cent of gross domestic product.

Patrizia Rossi

Patrizia Rossi

Patrizia was Editor of M&A magazine, a sister title to GrowthBusiness, from 2006 to 2009.

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