Consolidator has no acquisition plans, but opportunistic purchases not ruled out

Consolidator Jelf is to focus on organic growth and has no plans to make any acquisitions in the immediate future, according to group chief executive Alex Alway in the week that the company reported a strong start to 2012.

Jelf made its last acquisition in 2008, the year the global financial crisis hit, and Alway said the company’s focus will now be on organically building the business.

Towergate has been the most active consolidator in the mergers and acquisitions market recently, going head-to-head with Alto Intermediary Group to purchase Cobra.

Meanwhile, Giles is competing with Acromas for the UK broking assets of French insurer Groupama.

In a trading update last week, Jelf said it had made a positive start to 2012 and continued to trade in line with expectations.

It added that its focus remained on margin improvement, while net debt continued to fall in line with management expectations.

Ahead of its six-month results release next month, the board said that, while it remained cautious about the economic outlook, it would continue to invest in growth and look at additional investment opportunities.

Jelf bucked last year’s tough economic conditions after increasing EBITDA (earnings before interest, tax, depreciation and amortisation) by 3% to £10.1m and boosting revenues by 2% to £72.1m, while reducing debt to £3m.

“All of the parts of our business have objectives to grow organically but organic comes in different ways, whether through acquiring new customers and new people or selling more of our menu of services to our existing clients,” Alway said. “That’s not to rule out acquisitions, but they would be opportunistic in nature, basically.”

Alway said that, while Jelf was looking at acquisitions, it was yet to find anything of real value at the right price.

“We’re having lots of discussions but we are not looking to contemplate an acquisition in the near future,” he said.

“The world back in 2008 when we had a lot of deals is completely different from the environment today. There are a few firms out there making acquisitions, but there are also a lot of firms not making acquisitions.”

Jelf’s competitors have undergone major shake-ups in recent months, with changes at the top of Oval and Giles, and movements in and out at Towergate, AJ Gallagher and Bluefin.

Alway said it was an inevitable part of the business cycle for a management team to move on, although his own company had enjoyed a high level of continuity.

He said that the group’s brand integration had been successful, driven by the performance of the insurance, employee benefits and Purple Network segments of the business.

The UK insurance industry, Alway said, was in a prolonged soft market, with all composite and specialist insurers chasing the same lucrative SME market and no signs of commercial rates rising soon.

On the broking side, he added that the market was fiercely competitive in terms of attracting and keeping clients, and recruiting and retaining staff.

Elsewhere, Jelf’s employee benefits and health business improved in 2010 and 2011 after a couple of difficult years, as employers looked to re-engage with their staff, Alway explained.

“Since 2010/11 we have seen a very active market in employee benefits,” he said. “Health is a very resilient market. Healthcare insurance is not one of the benefits that you take away from an employee’s benefits and so it has a lot of stickability.”

Admitting that the company’s share price had suffered as a result of being listed on the Alternative Investment Market, Alway said it was difficult for an insurance broker in a small-cap market to attract inward investment and share value movement.

Talking points …

● Given the flurry of M&A activity in recent weeks and the big changes at its rivals, when will Jelf re-enter the market?
● After a positive start to 2012, how does the company plan to maintain its success in a highly competitive market and a tough economic environment?
● What is next on the cards for rival Oval following its management reshuffle as the broker looks to deliver a better return to investors?