Interview: Paul Meehan

Smart and Cook managing director Paul Meehan smiles wryly as he answers the question he has been expecting since this interview began.

"There was a lot of interest in Smart and Cook when Geoff died. It came as a result of press speculation and the Willis comment.

"We weren't talking to Willis because we are not interested in selling. The shareholding is still there, but Geoff's family is bound by the investment agreement. Why would we want to sell anyway? We don't need the money."

The event Meehan is referring to is the sudden and untimely death of Smart and Cook founder, chairman and majority shareholder Geoff Cook in January this year.

Following Cook's death, market sources had connected interest in Cook's stake with broking giant Willis, which has aims for regional expansion.

At the time, Meehan said rumours of a possible sale were simply an example of "schadenfreude" within the broking market, a comment he stands by today.

Even if Cook's family, who inherited his 60% stake in the firm, had wanted to sell his holding, they were bound by the deal agreed with venture capitalists 3i.

This means none of the major shareholders can sell their stakes without first offering it to the other parties, or without the approval of the other shareholders.

And while rumours of selling stakes are on the agenda, 3i says its investment in the Harrogate-based group is not affected by its recent decision to sell 800 of its minority shareholding investments.

The main change to the company has been the change in reporting lines, and the appointment of David Owen as non-executive chairman. "There's been no change in the strategic direction of the group," says Meehan.

Indeed, the company is once again on the acquisition path, targeting brokers with between £2m and £5m revenue in the North West and the Midlands. It now has operations stretching from Glasgow to Ludlow.

Smart and Cook's Scottish operations in particular received a boost in November last year, when it signed a five-year deal with HBOS's commercial arm BOS Commercial Insurance to service leads from BOS's corporate banking division. This would focus on businesses with a turnover exceeding £1m. The deal will continue for "a number of years," he said.

National coverag
"The deal gave us a whole new sales team in the South, and a large number of new clients in Scotland. It gave us national coverage overnight."

The company also took on 60 staff and opened a new office in Leeds to support the business.

But that's all in the past. The story now is what the company is going to do going forward, says Meehan.

More acquisitions are in the pipeline, following the six completed between March and December 2004. The company is also entering new niche areas, particularly farming, through its acquisition programme.

"We'll stick to what we know and understand. I don't see us moving into the Lloyd's market."

Meehan is also cautious when it comes to market conditions. "The soft market is going to cause some difficulties for all brokers right at the time when there are cost pressures coming in on regulation, and they are paying more for staff."

But other recent market developments have been blown out of all proportion, he maintains. "Marsh throwing contingent commissions back to the insurers was a knee jerk reaction. The fundamental trading model has been in place for 50 years and it is, in my view, a fair trading environment.

"If you look for evidence you can see that neither brokers not insurers have made huge amounts of profit, and the client has had the benefit, so the model has worked.

Fees go u
"But what Marsh has done has fundamentally undermined its ability to deliver to a lot of corporate clients. At the end of the day corporate clients have to pay more money. Where's the sense in that? The fees have to go up because Marsh isn't getting PSAs any more.

"So who's losing? The client. And who's winning? The insurers."

However, the future for UK brokers is not entirely rosy, said Meehan. "We all have a very difficult 12 months ahead of us, and the valuation of brokers is going to come down."

But worsening market conditions will not stop the consolidators from gobbling up the market, predicts Meehan. "There's room for all the consolidators. The one problem is finding as many businesses as we want to buy. We very rarely come up against each other."

Smart and Cook itself is two years into a five-year deal with 3i, and although it made seven acquisitions last year (only two of them worth over £2m), the majority of the money from the financing deal is still in the bank, says Meehan.

And while he predicts that the market will continue to be soft for the next two years, it's not the only problem brokers are facing.

Brokers have had to get to grips with the FSA, which Meehan says "gold plated" the European intermediaries Directive. "It has gold plated the directive in a very serious way which has put a huge burden on the intermediated market in terms of cost and process.

"It has made the regime extremely complex. If it had adopted compulsory risk transfer it would have eliminated all of the client money rules. It could have been a lot simpler and it's a huge problem for the market.

"It is inhibiting the ability of the industry to move as fast as it did."

And with that, the guitar playing broker has set the record straight, berated a market leader, and chastised the industry's regulator. Having done all that, it's back to business as usual.