Where will the consolidation game end?
Following the announcement by Giles of its plan to forge a multi-billion, insurer-broker giant to take on the Towergate and AXA empires, it is safe to say the consolidation goalposts have not only shifted, but have been almost entirely uprooted.
While the recent focus in the market has been at the small-to-medium broker end, the latest spate of acquistions and refinancing moves suggest that a final and radical phase in the consolidation cycle has begun.
But before Charterhouse gets its cheque book out, Giles will have insurers and smaller brokers across the land breathing a collective sigh of relief.
"The end game here is to achieve balance in the market by creating a consolidator to rival Towergate," a senior market analyst explains. "At present, even Venture Preference is only a third of that size."
But as Giles himself will tell anyone, the strategy nothing new. In September, when Aviva took its 7.5% stake in the broker, he remarked: "Some of the medium-sized consolidators need to get together to get ourselves to a £400m to£500m size and take on the big acquirers."
The difference now is they – or at least their equity backers – have put their money in the same place as their collective mouths.
Oval appears to be the odd one out. In November, after the company secured an capital injection form its bankers of £15m, Chief Phil Hodson said he would be looking to gain a further £50m this year. That hasn't happened yet and, even if it did, it doesn’t seem like nearly enough.
Luckily for the broker, it has a large backer, Caledonian, that has already demonstrated its long-term commitment to the group. But could it, like Gresham before it, and like SBJ's 51 per cent backer Capital Z, be offered an attractive package to sell its stake? And will Charterhouse and 3i, who have committed to a long-term strategic partnership with Jelf, come to a similar agreement somewhere down the line?
Before any of that happens, it will be interesting to see how much of the £500m earmarked for Giles, and £300m or more for Jelf, will be spent by this time next month, when the proposed changes to the capital gains laws come into effect.
Though there will be something of a hiatus after the 5 April deadline, it seems clear that the hovering up of smaller brokers will continue in earnest. When the larger players will go – including when they might buy each other – is less clear, though some sources speculate it could be as soon as the summer.
What happens to Towergate during the next couple of months will be critical. In January, a spokesman for the company said it aimed to complete its third refinancing in as many years by either the end of this quarter, or sometime shortly after.
More recently, the spokesman said the refinancing would not likely see a huge injection of cash for acquisitions, but instead a consolidation of its existing debt into a new package, believed to be worth around £1bn, while its plans for 2008 did not involve any blockbuster deals, but rather a steady stream of smaller acquisitions.
The question is will the involvement of old investment partner Candover – and the recent moves made by Giles, Jelf, and AXA – change that?
Based on recent history, one thing is clear: Towergate is not a company that tends to sit still.