Sir Richard Branson boosted his attempt to become a leading player in the UK banking sector by agreeing to buy Church House Trust, a small regional private lender. The deal effectively gives Virgin Money a banking licence, allowing it to offer a full range of products to consumers, since the proposed purchase has already been approved by the Financial Services Authority (FSA).
After making the acquisition, Virgin aims to grow its banking business organically. However, it has not ruled out buying further assets, such as those that RBS and Lloyds have said they will divest. Buying Northern Rock assets might be possible too. The offer document states: “Having established an initial banking platform, the Virgin Money Directors believe that the acquisition of Church House Trust will enable Virgin Money to contemplate future acquisitions as appropriate.
“The Government has said it hopes the disposal of bank assets will see new players enter the market and Virgin Money may consider opportunities should they present themselves.” At present Virgin has 2.5 million customers of its existing financial services arm, which offers credit card, savings, insurance and investment products. However, Church House Trust is allowed to offer mortgages and take deposits as well.
Virgin will put in £37.3 million of new capital into the Church House Trust business. In 2008 Virgin Money made a £27.5 million in pre-tax profit on £98.4 million turnover. Church House Trust reported a £450,000 pre-tax profit on £4.05 million operating income for the same period. Church House Trust shareholders will receive 509.2p in cash and 1.0294 contingent loan notes for each share they own. That values the business at £12.3 million.
Virgin has received irrevocable undertakings to accept from investors representing 65.8 percent of the shares. Europa Partners advised Church House Trust. Quayle Munro acted for Virgin Money.