'When Andy and I shake hands, that’s the deal we do'
Is this really goodbye? Larger than life and just as unpredictable, Peter Cullum and Andy Homer have been dominating the general insurance market since they joined forces in 2002, Homer abandoning the corporate insurer world to join Cullum and create the sprawling distribution empire known as Towergate. Love ’em or hate ’em (and plenty of people do both), there’s been no escaping the Cullum and Homer show.
In fact, they’re considered so integral to the Towergate business, and to insurance itself, that there are many who believed today would never come. But it has. In their first and last interview together, Cullum and Homer exclusively tell Insurance Times their interpretation of the past and their vision of Towergate’s future – without them.
The pair sit together at the large, oval table in Towergate’s shiny City of London office. Cullum, Towergate’s founder, chairman and senior partner, leans forward, speaks intently, jabs his finger in the air when he wants to create emphasis. Homer, who likes to style himself as an irreverent joker, sits back, arms crossed, rolls his eyes when he gets impatient, twists in his seat and waves his hands in the air.
They interact with all the ease of 10-year business partners – there’s no good cop, bad cop; each has a touch of both. It’s all smiles and charm this afternoon, but you wouldn’t want to sit opposite them in an argument. “We’re tough guys,” they admit at one point – as many an insurer could tell you.
The story of Towergate’s birth in 1997 is well rehearsed, so we won’t go into it. Nor will we dwell on the fights and legal spats that have dogged the insurer, or the legions of sceptics – less vociferous today – who once spent much of their time enthusiastically predicting the empire’s downfall. We won’t even spend too much time arguing about EBITDA and whether it really is the best measure of financial success for a consolidator, or simply smoke and mirrors.
In the 2010 results, released last week, EBITDA was up 18%, turnover was up 12% and the overall loss was £14.2m. Homer crows over the figures and seems spoiling for a fight. He’s not going to get it – EBITDA has its adherents and its detractors, and we won’t be changing any minds here today.
But EBITDA is simply a footnote in the epic Towergate story and we’re here to talk about the final chapter – for Cullum and Homer, at least. Three months ago, private equity house Advent took a £200m stake in the business, which then completed a £930m refinancing, including a £520m corporate bond issue. After many years of waiting, and the small matter of a global financial meltdown, they’d finally done it.
“For the record, this wasn’t some kind of knee jerk,” says Cullum with pride. “Advent started talking to us at the beginning of 2006 – it’s been a five-year courtship. The cocktail of a bond issue with private equity investment became irresistible as we became more aware of what a private equity investment brings to Towergate and, dare I mention IPO, in terms of credibility and appeal to institutions.”
Cullum has said the magic word: IPO. The business is looking for a potential flotation in three to five years, and the recent management activity all leads up to that – including Cullum’s decision to become vice-chairman and hand the chair to Alistair Lyons. Lyons, also chairman of listed insurer Admiral, has been circumspect in his public utterances on a potential flotation, but there’s little such caution in evidence today.
“It’s real now,” says Cullum. “Andy’s done the Plc world, and I don’t think that’s something he necessarily enjoyed. I don’t want to do the Plc world because I don’t think I have the skillset or the desire. We were very open with Advent and said our future was going to be non-exec.”
Homer chimes in: “Towergate cannot ever be judged a success until such time as Peter and I have handed it on.”
What sacrifices does this entail? Cullum gave up significant equity and is no longer the majority shareholder. “The value of my remaining shares is going to be enhanced to a greater level than my original shareholding,” he says. “We didn’t take any money off the table.”
The emotional sacrifices were greater. Says Cullum: “We had to make a very, very conscious decision, and once you’ve made that decision and you’ve announced it to your family, you have to do it, otherwise you lose all credibility, and then they, quite naturally, have the view that these guys are never going to get out the way.”
Cullum’s use of the word “family” in this context means his staff, and not his wife and children (no Godfather jokes at the back, please).
Both men are passionate about the community they have created and the careers they have nurtured. They are well known for acting as informal mentors, launching and developing several well-known careers. Towergate’s pool of 100 or so highly trained managers will be their legacy.
But how sharper than the serpent’s tooth to have a thankless child. At the end of last year, the business suffered one of its bitterest and most public blows when golden girl and heir apparent Amanda Blanc jumped ship for the top job at AXA Commercial. It prompted many to question the long-term
stability of the business – what does Blanc know that we don’t? – and threw that careful succession planning up in the air.
“We were genuinely very puzzled,” Cullum says. “Emotionally, it was painful.”
Could it be that Blanc thought deep down that they would never step aside? Has the soul-searching prompted by her departure led to today’s clarity on their future? “No,” Homer snaps. “Not at all. Amanda’s departure was covered by internal succession. It’s one of those things you take in your stride. It’s not had any effect on timing, sentiment or planning.”
There are some mixed messages on Blanc, probably because this is one of the few occasions when business really mingles with emotion. They praise her and are scrupulously polite (Homer: “I won’t hear a word against the lady”), but there’s a palpable sense of disappointment, confusion and even anger. After all, you shouldn’t take sides against the family …
Yet this wasn’t their first setback, nor even their biggest. That was the ‘close but no cigar’ deal with Candover in 2008, which would have valued Towergate many times higher, but the agreement fell apart at the 11th hour.
Regrets? You must be kidding. Cullum has an uncompromising message. “They changed the nature of the deal on the day we were going to do it, and we told them to fuck off. As a principle, when Andy and I shake hands, that’s the deal we do,” he says.
Moreover, they reckon that given Candover’s subsequent troubles (it had to sell off several investments in 2009), they had a lucky escape. “Given the difficulties Candover later had to cope with, that deal could well have had a devastating impact on the future of Towergate,” Cullum says.
Homer and Cullum don’t mince their words. They’re known as ruthless negotiators and have backed more than one insurer into a corner. Did they ever take it too far? “I think we’re arrogant,” muses Homer. “We’re not arrogant, we’re confident,” says Cullum. “I’m arrogant, he’s confident,” says Homer, concluding a rather endearing, Morecambe and Wise moment.
“There’s a song by Van Morrison called Why Must I Always Explain, and we did get tired of trying to explain what our story was, what consolidation meant,” Homer says. “We stopped our guys going to conferences, and we did create a secret society for a while where we weren’t explaining what we did. There might be a streak of arrogance in that. We didn’t set out to do it, but I can imagine people saying: ‘The arrogant so and sos’.”
As to the future, Homer’s date for departure from a full-time role is less certain than Cullum’s – he can’t go until he’s found his successor. The hunt is on. He reveals that headhunters are vetting a shortlist of nine: six external candidates and three internal (that would be Clive Nathan, Tim Johnson and Michael Rea, fact fans).
“I’ve got it in my head that I could be in post for the next 12 months or more, or I could be semi-retired and a non-exec director by September,” Homer says. No prizes for guessing which he’d prefer – though he’s careful not to let on.
While their full-time involvement will come to an end, Cullum and Homer will remain a part of Towergate – for a time, at least. Both have significant cash tied up in the business, and both will be non-exec directors up to, and for a short period after, a flotation. They are also likely to have to keep money in the business for at least a year or two – how much and for how long will depend on the terms of the flotation and how much money is raised.
But their future involvement will not just be financial. While Cullum has already adapted to his new role – “better than expected”, according to Homer – he’s still working full time, and then some. He remains chairman of e-trading business PowerPlace and ‘little sister’ consolidator CCV. Expect to see significant activity from both of these operations. PowerPlace in particular will transform the distribution landscape, reckons Cullum. He sings the praises of new chief executive Simon Ball (who replaces Matthew Reed, now with Blanc at AXA).
“I believe passionately that PowerPlace, or whatever the equivalent may be, will change the shape of commercial insurance, not just in the UK but on a much wider scale,” he says.
It’s a consistent message: Towergate has always been about distribution, regardless of platform. “We started with nothing in 1997, in downtown Hornchurch in a poxy office,” Cullum says. “And 13 years later, we have influence over £2.8bn of premium.
“Compare us with insurers that have been around for 280 years and we’re a lot bigger than they are. That isn’t based on good luck or being in the right place at the right time; it was a creation.” Messieurs Cullum and Homer, take a bow.