Shawbrook weighs alternative to float with £5bn Starling merger approach

Yahoo

23-04-2025

Shawbrook Group, the mid-sized British lender, has made a tentative approach to Starling Bank about a £5bn merger as its owners try to avoid relying on a moribund backdrop for UK stock market listings.
Sky News has learnt that Shawbrook reached out to Starling in the last two months to gauge its interest in a deal.
City sources said on Wednesday that the approach was "highly preliminary" and did not involve any detail about the proposed terms of a transaction.
There are not understood to be any live discussions between the two sides, although the door has been left ajar for Shawbrook to return with a formal offer, the sources added.
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It is not the first time that Shawbrook has informally contacted Starling about a deal, and insiders said there was little visibility about whether a combination of the two banks would progress further.
Nevertheless, the disclosure that Shawbrook, which is controlled by the private equity firms BC Partners and Pollen Street Capital, has broadened its sights beyond a public listing of its shares will fuel expectations of a new round of consolidation among Britain's mid-tier lenders.
It also underlines the difficulty of taking banks public at a valuation which is attractive to their existing shareholders, given the ratings of existing listed peers.
Shawbrook and its owners have examined a number of merger opportunities in the past, including exploring a merger with Metro Bank when the latter was in serious financial distress in 2023.
Just weeks earlier, Shawbrook sounded out the Co-operative Bank about a £3.5bn all-share merger in an attempt to pre-empt a wider auction of the former mutually owned lender.
That was also rebuffed, with the Co-operative Bank completing its sale to the Coventry Building Society earlier this year.
Sky News revealed in January that Shawbrook's owners had hired bankers to prepare for an initial public offering in the first half of the year.
That timetable has slipped in recent months, and people close to the company dismissed recent reports that the change in the timing of an IPO was in any way connected to the market turmoil triggered by President Donald Trump's tariffs policy.
One obstacle to a merger between Shawbrook and Starling would be the valuation ascribed to the latter business by its shareholders.
Many Starling investors believe the company is worth at least £3bn and would prefer to hold out for a higher valuation as its technology platform, Engine, continues to grow.
There would, however, be logic to a combination of the two banks, with both having a meaningful presence in the business lending market.
BC Partners and Pollen Street Capital took Shawbrook private in 2017 after a stint on the London stock market.
Starling Bank has also been repeatedly tipped as a listing candidate, although any significant merger would inevitably delay such plans.
London has been fighting to overturn the impression that its public markets have become a troubled arena for public companies, afflicted by a lack of liquidity and weaker valuations than they might attract in the US.
Shawbrook, which employs close to 1,600 people, has more than 550,000 customers.
Founded in 2011, it was established as a specialist savings and lending institution, providing loans for home improvement projects and weddings, as well as business and real estate lending.
It is among a crop of mid-tier lenders, including OneSavings Bank, Aldermore Bank and Paragon Bank, which have collectively become a significant part of Britain's banking landscape since the last financial crisis.
Starling Bank, meanwhile, has grown rapidly as part of a crop of digital banks which also includes Monzo.
Shawbrook declined to comment on Wednesday, while Starling Bank has been contacted for comment.