The chief executive said that the increasing EBITDA multiples being paid for brokers has damaged best practice while only lining the pockets of private equity firms and a select few lawyers and entrepreneurs
Partners& chief executive Phil Barton said the rise in the prices being paid for broking businesses has created a flow of capital into the sector that has damaged best practice and weakened the service provided to clients.
In an in-depth interview with Insurance Times, Barton likened this to the vast amount of money that flowed into football as the Premier League era took hold, with big name players taking home big money, and football agents taking an even bigger slice of the pie.
“A wall of money came into the sector, and it broadly flowed through the market participants and ended up in the hands of some very wealthy players, some lawyers and a lot of agents,” Barton said. “But is the experience of football today any better than it was? I doubt it.
“The broking industry is the same. A wall of capital flowing through the clients and advisers into the hands of private equity, a few entrepreneurs and a lot of lawyers. But the client experience isn’t any better, and I would say things have actually got worse.”
Barton said the demands placed on businesses to deliver profits for their private equity backers quickly had spawned an era of short-termism that was against the very nature of insurance broking.
“The multiples that are being paid for broking assets today are simply unsustainable and aren’t justifiable,” Barton said. “Insurance broking is inherently a long-term single digit growth business. Its strength is it has a fantastic annuity income stream, but it doesn’t justify some of the multiples being paid, but that’s only the beginning of the problem.”
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