The latest from the Groupama sale shows that private equity houses still find insurance brokers very interesting. But does this option have a limited shelf life?
The fallout from the Groupama sale rumbles on, with today’s revelation that private equity houses including former Giles investor Gresham are lining up to back the Bollington management in a buy-out. No great surprise here: the business is solid, it has maintained its separate identity from Groupama and its other UK broking assets, and it has a strong management team. There have also recently been some changes to the structure of that team and some contract wins that position it well for growth. As you can read in chairman Paul Moors’ exclusive blog for Insurance Times, the management team are keeping their head as they negotiate their way through number crunching and talks with lawyers.
It’s a similar tale over at Lark Insurance, a strong commercial player that, like Bollington, is family-run. Graham and Stephen Lark maintained a minority stake in their business when they sold to Groupama in 2007, and are likely to buy it back with support from private equity. In both instances, hostile bids seem unlikely as the support of the management teams for the new owners is a prerequisite for success.
What’s interesting here is the continued appetite of private equity firms for general insurance brokers. Towergate, Giles, AA/Saga, Hyperion, Oval – a huge swathe of the UK’s broking businesses are backed by private cash. But is this a sustainable solution? Most of the brokers cited above plan to float within three years to raise the cash to pay back their investors – but it’s practically certain that not all of them will be able to.
When that plays out, the market will have to restructure accordingly, probably with a number of major mergers or acquisitions. In the mean time, the private equity pound is paying the piper.
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