Buying Lloyd’s broker Windsor is a key step in Hyperion’s move towards the stock market

Hyperion’s acquisition of Lloyd’s broker Windsor will add welcome bulk to the firm as it heads towards its 2013 initial public offering.

The deal was a long time coming – rumours that the companies were in talks began circulating at the beginning of this year. The quiet since then led some to speculate that the deal had turned sour, but this morning’s announcement has proved otherwise.

It has long been Hyperion’s goal to put on extra weight before making its stock market debut. In February last year, Hyperion chairman John van Kuffeler told Insurance Times: “It is likely that prior to the IPO we will make one or more further acquisitions.”

Size is important when floating because smaller stocks simply do not get the same attention from analysts and investors. The less attention, the less liquid the stock, and so the less advantage a company has from being listed.

If stock is not traded very often, even a small flurry of activity can create big swings in stock price, which itself can be a deterrent. Plus, the less liquid the stock, the harder it is to raise capital through further share issuance – one of the main reasons a company would opt for a listing.

As well as adding to Hyperion’s size, the addition of Windsor will be a further demonstration that this is a broker that is going places and has a strong focus on what it wants.

The market received a demonstration of this desire for focus with the sale of its majority stake in cyber liability-focused MGA CFC.

So what is Hyperion getting? Windsor is profitable both on an EBITDA and a bottom line basis. According to the most recent figures available at Companies House, Windsor made a profit for the 15 months to December 2010 of £3.5m on total revenues of £40m. This was despite a one-off charge of £1.9m for relocating its head office to 71 Fenchurch St.

Net assets as of the end of 2010 were £14m.

Windsor is not without debt. As of the end of 2010 it had £18.1m of bank loans and £9m worth of loan notes. However, its finance costs of £4.9m were comfortably covered by £9.7m of operating profits.

By all accounts, Hyperion has added strength as well as bulk.