Briefing: Why Ardonagh has turned a big corner with latest deal

Briefing by content director Saxon East

There was a time when Towergate was valued at £3bn, as Candover was poised to take a 25% stake for £750m in 2008.

Then the financial crisis hit, Towergate nearly collapsed, was saved at the eleventh hour and judging by today’s announcement, is climbing back to the valuation levels last seen a decade ago.

Are Ardonagh’s private equity backers HPS and Madison Dearborn correct in their valuation, or have they allowed themselves to be slowly sucked into a Candover-type valuation during a financial bubble with history repeating itself?

It’s impossible to predict when the music will stop and what it will mean. One day you’re an investment wizard, the next a footnote in history on how to invest badly at the wrong point in the cycle.

As it stands right now though, the valuation put on Ardonagh is good news for the business. 

If two very experienced investors such as HPS and MDP are willing to increase their shareholdings, paying at an enterprise value close to £2bn, then it shows their faith in the business.

It’s based on the expecation that Ardonagh’s 2018 pro forma adjusted earnings of £185m will be fully realised. 

It also reaffirms the likelihood of a big pot of gold at the end of the rainbow for Ardonagh’s David Ross-led management team.

This is all based on the premise that David Ross, his team and hard-working staff across the UK - the unheralded advisers up and down the country who care passionately about their customers - can execute the business strategy. 

This will mean accomplishing its cost-cutting plans, finishing off the investments, extracting maximum value from the Swinton deal and at least mid-single digit organic growth across its businesses.

Realistically, Ardonagh is not going to see positive cashflow until next year, with the full benefits of the hard work coming through in 2021 and 2022. 

If Ardonagh can do all that, it can rewrite history with a happy ending.