Consolidators are getting busier and looking forward to chasing growth
In an eventful week for the consolidators, a number of observations can be made:
1) Is Gallagher chief executive David Ross getting value for money with his acquisitions? Gallagher shelled out £97m last year on Heath Lambert Ltd, and accounts filed last week reveal it has cost about £20m to integrate - a figure Gallagher believes is in line with expectations.
What is positive for Gallagher is that brokers are selling for lower multiples in the post-financial crisis period at, say, five to eight times earnings, instead of 10 to 13.
2) Which brings us nicely on to Jelf, which this week revealed it was back on the hunt for acquisition targets. The West Country-based broking group is now on a sound financial footing, so it makes sense to get buying again. Likewise, Oval, which is also back on the look-out for brokers, has trimmed debts and is in better financial shape than a few years ago.
3) The interesting one among the consolidators is Towergate. It’s still heavily on a buying spree, funded by a war chest from private equity backer Advent. Chief executive Mark Hodges must prove it’s not a one-trick pony. Anyone can go around buying brokers; the test is to achieve organic growth. He’s completed act I by cutting costs to keep profits stable, now he’s got to grow the business.
So far, we haven’t seen much in the way of ideas from Hodges, unlike his nearest rival, Giles chief executive Brendan McManus. McManus has launched a reinsurance arm, harbours ambitions to expand his network offering, and wants to bolster the firm’s image by proving to insurers that it can deliver healthy profits for underwriters.
McManus has taken a very entrepreneurial attitude to Giles, as opposed to Hodges, who wants to make the company more corporate.
Whichever consolidator delivers organic growth will be the true winner.