Towergate’s acquisition of Broker Network has raised many questions among the network’s members. Will the deal prove to be good news for both broker and network? Tom Flack and Danny Walkinshaw report
Towergate last week paid almost £100m for an organisation with brokerage of less than £25m and pre-tax profits of just £6.5m.
The move seemed inevitable following the rejection of an initial approach in October to buy the Broker Network (BNL). But the price tag has raised eyebrows.
“Once they get their teeth in, they never let go,” says Paul Meehan, joint chief executive of Venture Preference.
“They wanted to buy a network. Now they’ve bought the best.”
Rival network Cobra has noted that if it were to be valued on the same basis as BNL, the share price that shareholders should accept would be 53% higher than its current market value.
But price is of only a host of unresolved questions. In fact, there are almost as many concerns about the deal as there are BNL members.
The acquisition appears to place in doubt the future of the organisation recently regarded as the flagship of the independent broker and a bulwark against the creeping clutches of the consolidators.
In turn, there is the question of what amendments were made to the offer that resulted in the BNL directors unanimously recommending shareholders accept it.
Observers have also raised concerns over conditions, commissions, the future of its members (with rival networks waiting in the wings to poach disgruntled parties) and IT systems.
Answers will no doubt follow in the coming weeks as the relevant parties, including insurers, sit down to review their arrangements.
With regard to the future of the network, Towergate has repeatedly proven that it prefers to leave the businesses it acquires to their own devices – and this occasion would appear to be no exception.
“It will be interesting to see if [the acquisition has] any impact on commission amounts paid to Broker Network members,” says Andrew Linnell, director of business consultancy Xceed Radix.
“Certainly it is a great win for Towergate. It can increase the distribution that will go through its underwriting agencies.”
Towergate’s underwriting agencies already account for half the group’s £270m brokerage. At present, BNL members place £10m in premium – or 2% of the group’s total – via Towergate facilities. That figure will inevitably grow. At whose expense is, if anyone's, is as yet unclear.
What is apparent is that the new proposition will be product driven. BNL members will have greater access to Towergate products and over 200 schemes. Members will also benefit, the consolidator says, from enhanced terms with underwriters as a result of Towergate’s scale of operation.
“Broker Network members will think they are better off,” adds Meehan. “They will start to benefit from better rates.”
But not all sources think improved rates are inevitable. “In reality, this could turn out to be a win for all three parties,” says a senior source at a major insurer. “It is not safe to assume that commissions will go up.”
The managing director of one member says: “If you read between the lines, we only actually get these benefits if you take on Towergate products. I have deals with other insurers that I am not going to lose sight of.”
He adds that commissions, though improved, may not be sustainable in the future, concluding “I would go as far to say that these benefits are actually illusory.”
Broker Network chief executive Grant Ellis adds that conversations with insurers are ongoing.
“We want to see what is best of breed. From insurers’ perspective, combined business is better than separate.
“Our members are saying: ‘what can we get?’”
While the commission question will take some time to resolve, the future of the 22 brokers that BNL owns could be much more straightfoward.
“It seems entirely natural that the owned members will be realigned under the Towergate umbrella,” says one broker chief.
Of the 147 members which are not owned by BNL, it is highly likely that some will be bought by Towergate. Before that happens, however, some may choose to exit the network.
Ellis, who describes the members’ response as “ambivalent”, admits that the “odd exception may go”.
Rival networks, meanwhile, are unanimous in stating their belief that, despite going head-to-head with Towergate’s new network division, they will achieve their own targets more easily. Some have already received inquires from existing BNL members.
“I see it as an advantage,” says Steve Burrows, chief executive of Cobra. “I think a lot of [the] membership will consider their options.”
But a source from a major insurer counters, saying that Ellis’ integrity will “play well with members who are thinking about leaving”.
Meanwhile, both BNL and Towergate have moved to rubbish suggestions that moves will be made to implement an Open GI solution for all members.
Acturis is currently the preferred platform for BNL users (which nonetheless have complete control over which systems they use) while Towergate continues to adopt Acturis systems, including most recently at its office in Oxted.
“Acturis has had a good footprint,” says Meehan. “That will not change. It would anger the members if they tried.”
Love them or hate them, the prevailing opinion is that the move is good news for Broker Network – and even better news for Towergate. IT