Analysis-UK motor finance ruling could fuel M&A

By Charlie Conchie

LONDON (Reuters) -A ruling from the United Kingdom’s top court that will likely save car finance companies billions in compensation payouts could clear the way for a wave of consolidation in the sector.

The Supreme Court this month overturned much of a lower court ruling on car loan sales practices, leading some industry experts to say the compensation bill could be less than half of initial estimates of about 30 billion pounds ($41 billion).

The lower cost – coupled with the fact that many private equity firms have owned car finance companies beyond their typical investment horizons – could help trigger a spate of dealmaking in a sector that has been in limbo for about 18 months.

“I think it’s the real activity that will start now,” said Hyder Jumabhoy, a partner at law firm White & Case. The owners of car finance lenders have enough clarity to begin preparing them for sale as they await full details of the redress scheme, he added.

Jumabhoy’s view was echoed by three other corporate advisers contacted by Reuters, although another three cautioned that uncertainty could hold back dealmaking until at least next year.

London-based private equity firm Cabot Square Capital has hired BNP Paribas to handle a sale of Blue Motor Finance, two people familiar with the matter said. Blue Motor made a loss of 8.5 million pounds in 2023 on revenue of 53 million pounds, according to its latest full-year accounts.

Startline, owned by U.S. hedge fund The Baupost Group, could also come to market in the coming months, advisers said. Startline reported 100.3 million pounds of interest receivable and other income in 2023 and a loss of around 4.25 million pounds, according to its latest accounts.

“There’s a series of highly attractive assets which have sat in private equity portfolios for longer than most would have expected, more for regulatory or macro reasons as opposed to anything else,” said Elliot Reader, a director at investment bank Houlihan Lokey.

“Now is a period of time where there is some more certainty and these assets can start to come to market.”

Cabot Square Capital, Blue Motor and Startline did not respond to requests for comment. The Baupost Group declined to comment.

To be sure, there are still uncertainties for the industry. Some advisers said the lack of clarity around the final redress bill could dampen deals until later next year.

“Does it (the Supreme Court ruling) pave the way for future M&A activity in the motor finance space given recent inactivity? Yes, but I’d expect any meaningful movement to emerge throughout 2026,” said Antony Walsh, partner and international head of corporate at Eversheds Sutherland.