As the market pulls itself together again, the mood is switching back to mergers and acquisitions. But while prices have come tumbling down since 2006/07, it’s likely to be a less frenetic picture this time around

As the broking world battened down the hatches during the recession, acquisitions took a backseat. But now the economy is slowly starting to pick up and banks, under pressure to lend, turn the taps back on for brokers, all the talk is that acquisitions are back with a bang for 2010.

It’s a mixed group of players: established consolidators that still have an acquisitive appetite and up-and-coming firms looking to bag some bargains. But how serious are this bunch and what are they looking for?

There will be familiar names, as the consolidators that dominated the headlines in 2007 return with newly minted chequebooks. “Those with access to capital will be involved – the Giles, Bluefins and the CCVs,” says one industry insider. All three of these firms have deals in the pipeline and the market expects acquisitions soon.

Bluefin chief executive Stuart Reid says: “We would like to do 10 to 15 acquisitions each year for the next three years. I hope that gives you an idea of how seriously we’re taking it.”

New kid on the block CCV, which aims to become a top 10 broker within three years, is battling it out with Bluefin for signatures. Its expansion will potentially add value to a float of the Towergate family, planned for 2012.

Towergate chairman Peter Cullum, also the majority shareholder in CCV, recently revealed plans to integrate the smaller company into the main group prior to an IPO.

Elsewhere, Charterhouse-backed Giles is still looking for that transformational deal that has so far eluded chief executive Chris Giles, as it seeks to boost its flotation prospects for 2012. Having failed in its bid to merge with Oval in 2008, speculation has recently linked Giles with Jelf. However, Jelf boss Alex Alway is said to be against teaming up with the rival consolidator.

Some in the market still feel Chris Giles has the potential to clinch a mega-deal. “He’s a very intelligent man, so he’s certainly capable of pulling something off,” one source says.

Less likely to make a transformational deal, but still on the look-out for acquisitions, are Towergate and Oval. But expect a low-key approach.

Towergate chief executive Andy Homer says the group will let CCV do the talking. “The reason Towergate won’t be quite so acquisitive is that CCV will be picking up a lot of the small businesses, and the stuff that suits us will drop into our existing businesses – not the mega deals of the past,” he says.

Acquisition fund

Oval renegotiated a £115m debt facility for acquisitions with its banks at the end of 2008. Group managing director Jeff Herdman told Insurance Times that his company is “definitely on the acquisition trail again” and that three or four deals are planned for 2010.

Herdman did not go into details, but one industry source believes the deals will be low key and not a priority for the Yorkshire-based outfit.

“There are people on the inside who want out and there are people on the outside who want out,” says the source, referring to reputed unrest among minority shareholders. “It was promised that within five years [Oval] would float, but obviously the environment was not quite right. There’s an intent to float in 2012, so the whole of 2010 will be spent working towards that.”

The source continues: “Towergate will be the same. They want to do a float in 2012, so all they will be doing is tidying up this year to get things in the right order for the listing.”

According to Lloyds TSB’s managing director for financial institutions, Bill Cooper, concerns over the economy will ensure potential buyers remain cautious. “People are worried about the economy and the performance of their businesses. There has not been much activity yet. If the economy does not take a double-dip, then the activity and the acquisitions will pick up gradually during the year,” he says.

CCV chief executive Michael Rea believes there will be plenty of opportunities to buy as brokers look to sell. “There is an ageing population of principals in the broking business. Some will pass on their business to sons and daughters; others don’t have a succession plan in place. So there is a kind of age demographic associated with it.”

Furthermore, prices have come tumbling down to realistic levels. While it was not unheard of for consolidators to pay 15 times earnings in 2006/07, prices are now down to between five and eight times.

One insider says: “Prices are significantly down on where they were, maybe 40% off where they were in the past. The environment is bringing it down to sensible levels of pricing.”

Cautious approach

The wait-and-see contingent is likely to include Lark Group, which has access to Groupama funding, and provincial consolidators such as Henderson in Yorkshire and Bollington in Manchester.

Capita Insurance Distribution will also take its time over a deal for a personal lines intermediary, but easily has the funds to emulate the £15m acquisition of personal lines broker Hero in March last year.

“If it looks like businesses can be acquired for reasonable prices, it will become interesting to private equity again,” Cooper predicts.

“We may see that towards the second half of the year.”

But one industry source disagrees, insisting that private equity has dried up and no other brokers with consolidator ambitions are likely to emerge. “I think it will be 10% of the activity talked about. There will be two or three players that go out and buy in a serious way.”

Where deals are done, some cash is likely to be withheld in favour of deferred payments and performance-related financial incentives, so buyers can insulate themselves from any future shocks from the economy.

For all the industry talk, one thing is clear: this year will involve nothing like the activity pre-2008. There are fewer big operators and, as a result, less money splashing around.

It’s going to be interesting, but perhaps not quite as exciting as the old days. IT

Main players for 2010 in the acquisition market

Capita Insurance Distribution

Acquisition funds: £30m

Backer: Capita Group

Targeting: A large personal lines intermediary, costing between £15m and £25m


Acquisition funds: £30m

Backers: Lloyds TSB

Targeting: Commercial brokers, smaller managing general agencies, online businesses


Acquisition funds: £100m

Backer: AXA

Targeting: Commercial lines brokers up to £50m gross written premium (GWP)


Acquisition funds: £100m

Backers: Towergate and Lloyds TSB

Targeting: Small provincial brokers largely with commercial lines but also possibly personal lines up to £15m GWP


Acquisition funds: £115m

Backers: Lloyds TSB, Barclays, RBS and HSBC

Targeting: Independent brokers


Acquisition funds: £300m

Backer: Charterhouse private equity house

Targeting: Commercial lines brokers up to

£50m GWP