The cheap road to acquisition can end up as a difficult and costly exercise, says Michael Faulkner
Why buy a broking firm when you can poach a team of brokers? That's the question on the lips of an increasing number of acquisitive brokers at the moment.
With the price of brokers reported to be soaring - one broker tells of bidding wars in which prices reached over 2.4 times brokerage in some cases - luring away staff and teams from other firms is becoming a more attractive option.
Proponents argues that not only can it be cheaper than buying a business, but it can avoid the time-consuming and laborious integration process that follows.
Willis' poaching of property teams from Aon and Heath Lambert is a good example of the current trend. In total, 17 brokers and support staff were tempted away from their employers, including Heath's property portfolio managing director.
As one rival property broker commented, the move "created a property division for Willis overnight". The teams will bring their contacts and market presence, while all Willis will need to provide are the desks and the back-office support. A potentially multi-million pound money-spinner before one can say golden handshake.
But the apparent simplicity belies the difficulties that poaching teams can pose. Take Willis' sparkling new property division again. Creating it is reported to have cost the broker over £3m in salary packages, company cars and ‘golden hellos'.
Moreover, contractual issues with the team's previous employers are understood to prevent the teams from working for a period of 12 months.
Until the restrictive covenants come to an end, or Willis spends even more money challenging them in the courts or buying out the obligation, Willis' new hot-shot property team could be an expensive albatross round the neck of the company.
Its not just legal issues and the expensive salary packages required to tempt teams away from their employers that can make the work of a poacher difficult and costly.
Integration problems - physical and cultural - can still arise if larger teams are moving. Furthermore, there is no guarantee that the new team will be any more loyal to the purchaser than they were to their old employer.
If they can be tempted away once with a decent pay hike and a flash new car they can be tempted away again.
And it is not just the loyalty of the new team that must be considered; customers' and insurers' loyalty can also be an issue.
When buying a business, one also buys the goodwill - the loyalty to that brand - along with any enhanced commission arrangements and special schemes negotiated with insurers.
But when poaching a team, it is by no means certain that any of these additional benefits will follow their move to the new employer. Granted the team may be well-known and respected in the market, but clients may simply prefer the brand name of the team's former company.
Poaching a team of brokers from a rival does have its attractions, particularly for cash-strapped companies who cannot afford to buy a whole business. But it is not without its pitfalls. As one broker says, it can be a "dangerous affair". IT