Don’t mention Towergate

When Cullum Capital Ventures (CCV) was launched two years ago it was intended to provide an alternative to sister company and consolidating giant Towergate. With a focus on taking over smaller companies with a GWP between £3m and £10m, CCV presented itself as the solution for those brokers opposed to Towergate who were still looking to sell all or part of their business.

But try as it might to distinguish itself from its powerful partner, it wasn’t long before it was being described as a ‘mini Towergate’, and ‘Towergate-in-training’. Both businesses were founded by Peter Cullum, the billionaire entrepreneur who now chairs both.

It didn’t help that as CCV grew larger and more powerful – with 30 acquisitions under its belt and a current GWP of about £220m – it began going after companies that far exceeded the original £10m GWP limit, blurring the lines of distinction. Already this year CCV has made several major acquisitions including Protectagroup and Lockton’s retail estate business with GWPs of £40m and £33m respectively.

In an exclusive interview with Insurance Times, CCV chief executive Tim Johnson admits that his company and Towergate do sometimes go after the same targets these days. But he is quick to highlight the differences and keen to correct the perception that Towergate and CCV are the same company.

Small beginnings
CCV was established in 2006 following the merger between Towergate and Folgate. Andy Homer, who had been chief executive of Folgate, was made chief executive of the merged entity, while Johnson, who had been chief executive of Towergate Underwriting, was left temporarily without a position.

He wasn’t out of work for long. Almost immediately shareholders Cullum, Johnson and Homer put up £11m, along with an £81m injection from Bank of Scotland Corporate, to launch CCV with a goal to top £100m GWP by the end of 2007, and reach a whopping £350m within three years.

The quasi-venture capitalist company was set up with one goal in mind, says Johnson: “To acquire businesses.”

He says: “The goal was to create an environment that would not subdue independence and entrepreneurial spirit.”

Of the 30 companies CCV has bought, it has a majority stake in 28 and a minority stake in two. CCV will buy all the companies in which it has a stake outright, at a time to be decided by the acquired brokers themselves.

Brokers purchased by CCV can keep their names, receive better IT systems and compliance activity support and can even access the company’s war chest to conduct their own acquisitions.

So far just one of CCV’s acquired companies has gone on to buy another business, says Johnson, adding that several similar deals are in the works.

Two years since its inception, CCV is already on its way to passing its initial goal of £350m within three years. By the end of 2008, Johnson says it will hit £300m, and he has set an ambitious goal to reach £500m by 2010.

In the first quarter of 2008 alone, CCV increased its GWP to £130m. It recently made its 31st acquisition with Walsall-based broker Cox Lee & Co. Johnson says the company has several more deals in the pipeline amounting to £70m GWP.

Breaking the top four
Sitting in a boardroom at CCV’s headquarters in the picturesque town of Sevenoaks, Johnson says CCV wants to be the fourth largest broker in the UK market and grow from there.

“We are not these big scary finance people. We are regular blokes who have always done insurance.

“I would like to see CCV become as big as possible,” he says. He has always been one to think big. He cringes when he recalls his somewhat brazen 25-year-old self boldly announcing to his boss, while working as a junior account manager at Aon, that he wanted to be managing director of that company one day.

“I know some may have accused me of being cocky, but I just knew that’s where I wanted to be. I was always better as a leader than a number two,” he says.

Confidence was one part of the equation, but he admits fate and luck were also key components. Now aged 40, Johnson has spent his entire 20-year career in the insurance industry – a decision he made when he realised his golf handicap, although impressive, was unlikely to make him the Tiger Woods of his generation. “I knew I’d end up selling golf shirts in a shop,” he says with a laugh.

Norwich Union (NU) proved to be something of a matchmaker between Johnson and Cullum. While still working at Aon, Johnson met Cullum on an NU ski trip that he nearly didn’t attend. The two hit it off and days later Johnson received a letter from Cullum inviting him for coffee and a chat. He met Cullum, following some prodding from friend and mentor Neil Utley, now chief executive of IAG UK. Shortly after he was offered the position of chief executive of Towergate Underwriting.

“I have been seriously lucky,” he admits.

But one has to question whether CCV’s luck can last. Can a company based entirely on acquisitions expect long-term success, particularly when some analysts have predicted the cooling of the current consolidation craze?

Ongoing effects from the credit crunch have many banks tightening the purse strings and less eager to dole out funding. CCV has been fortunate in that it has been able to rely entirely on its initial war chest of £92m. Johnson says the company has enough to meet its £350m goal but would need another cash injection to reach its next milestone of £500m.

But ever confident, Johnson isn’t concerned and is sceptical of those who say the consolidation in the broker market may be coming to an end.

“I’m still surprised how often a broker of decent size pops out of the woodwork and wants to sell,” he says.

Johnson says many of the companies looking to sell have chief executives who have hit retirement age. They will continue to come through. Others, however, consist of younger senior management teams looking for additional support to allow them to get back to focusing on their customers “We’re not these big scary finance people,” says Johnson. “We’re in it for the long term. We’re regular blokes who have always done insurance.”

Overspending
Johnson says CCV is trying to grow organically as it continues to buy. A difficult feat, he admits, but the company will continue with its efforts. “Our impressive top line growth will always come from acquisitions,” he says.

The credit crunch will have some welcome consequences for CCV. Johnson predicts that the costs of acquisitions will reach more realistic levels over the next year as companies find it increasingly difficult to access funding.

“Everyone at some point has been accused of overspending. Some may think we have paid too much for some of our deals, but unless you know the nuts and bolts of that deal, it’s hard to judge. Every business is worth what someone is willing to pay for it,” he says.

CCV shows no signs of quenching its thirst for acquisitions. As the market becomes more bogged down with compliance and regulation requirements and the continual evolution of costly technology, independent brokers will be looking for some backing, says Johnson. He and CCV will be waiting.