When Chris Blackham left the Royal Insurance Group in 1984 to set up insurance brokers Layton Blackham, even he could not have predicted the minefield the broking community would face in the ensuing years.
"When I set up, I tried to stand back from my own business and think about the overall market," he says. "By 1995, it was apparent what would happen to both the insurance and broking sectors. Even then I could see that technology would shape a broker's business and insurers would increasingly focus on a select number of intermediaries."
In response, Blackham began laying the groundwork for a new initiative called Quantum Leap, which he launched in 1997. Its aim was to establish a major nationwide group of insurance brokers providing high-quality local service.
"Smaller brokers began to find the market difficult," says Blackham. "Customers started wanting their local broker to provide big company buying power and also have the technology to deliver immediate service. This was in addition to access to a full range of high-quality products and nationwide representation.
"Failure to offer such benefits could in the future mean lost customers, lost profit and reduced capital value."
Layton Blackham's first acquisition in 1997 was of C. Bower, a company based in Farnham. Today it is in the process of completing acquisition number 15.
"We have sometimes been working towards an acquisition a month, but at other times there has been a six-month gap. We can't dictate who will be ready when," he says.
"A lot of companies are looking to buy other brokers. The majority will swallow them up and effectively destroy the old business, but we are looking for partners - either by merger, joint ventures or investment."
He cites as examples companies looking for an investor and business partner to provide the resources of a bigger group; a sleeping partner that enables a director to buy out partners; or a buyer that can pay a fair price for the business, continue to develop it in the local community, and use the existing staff.
"In essence, we want brokers that have a good client relationship based in non-major city centres where they deliver a local personal service. This could be the small local broker which has a commission income of less than £300,000 and is finding it difficult to compete in the market. Or it could be the firms with commission incomes of between £300,000 and £1m who have some economies of scale, or larger companies with between £1m and £5m commission income. The aim is to have a good mix of the three."
Blackham targets brokers with a high proportion of high net worth and commercial insurance books.
"Relationships are key in the whole process; you can't do a deal with someone you don't like," he adds. "This is why we always begin the acquisition process with a series of meetings. Whatever happens, they get to know us, our business and key people, and we get to know the same about them."
He admits that staff are a central concern, but adds that reducing staff is not their goal. Indeed the reverse is true. "In the majority of cases, we have recruited additional staff as the companies were under-resourced for their existing business, let alone their future growth."
After the initial meeting, the two companies will decide on a joint business plan which is then followed by a heads of agreement.
"This entire process can be done very quickly; we can do it in a week. But in general, it does tend to take several months."
He is reluctant to talk about acquisition price, but says that they always base their pure acquisitions on an earn-out formula. "Each deal is different because there are different risks involved," he explains.
"The final step in the process is linking up the company to the group IT system. After that, we look at staff training."
All the companies trade under their own name but are supported by the Layton Blackham identity. As part of the partnership, the company's existing agencies are cancelled; they use Layton Blackham's centralised agencies, and have access to the company's Elite commercial product range. However, if a company has a particular niche, they are not expected to surrender it.
Blackham admits that picking the right partners has been a learning process. "By far the majority have been successful, but both sides need to be open and comfortable, from day one, with the way the business is taken forward."
Of the future, Blackham says: "The broking market will continue to evolve and only a limited number of brokers will survive. Brokers now need to invest in themselves to ensure their position as professional advisors who provide a real value-for-money service. Investment in training and IT will be key to ensuring that clients receive the right advice, quickly and efficiently, in a manner that suits them."