Taking Marsh from a slippery downhill slope to the UK’s number one broker has been no mean feat for its UK and Europe chief executive
The Olympic spirit has certainly captured the imagination of Marsh UK and Europe chief executive Martin South. In the small talk prior to the start of the interview at Marsh’s London headquarters, South says the UK can only prosper in a highly competitive globalised world, if it adopts the winning mentality of the Olympic athletes.
It’s no wonder South is talking about being competitive. Marsh has just taken its very own broking gold medal after coming out on top of the Insurance Times Top 50 Brokers, squeezing out Aon into silver.
The number one accolade is a fitting way for South to sign off from his duties as UK chief executive, as he leaves to concentrate on his new European role. His successor is Mark Weil.
It wasn’t always like this, though. When South arrived as boss of Marsh UK in 2007, the group was making a loss and tainted by the Spitzer scandal, a furore over brokers allegedly trying to ensure premium was placed with the insurer returning the highest commission.
But today the UK’s top broking chief executive is ready to talk about this gigantic turnaround story. “Frankly, what was happening was almost chaotic,” he admits.
South says the profit and loss account was all over the place, with not enough cash coming in and too much money being spent on wasteful projects.
One of the first things South did was to outsource part of the back-office operations to Capita, which transferred the business to its low-cost operation in India. South says: “That gave us an almost immediate lift at P&L level - and enough time to draw breath and think carefully about what next.”
Next up was an intense scrutiny on all costs. For example, a “ridiculously expensive” advertising campaign was scrapped. “The budgets at that time were absolutely brutal,” he says. “We would crawl over every line item and monitor everything.”
South had tightened up spending and saved the company money, but his next challenge was to bolster revenues.
Marsh had negotiated a 2.5% commission uplift with clients and insurers, and South, along with his American bosses, successfully persuaded insurers and clients to make that gain permanent.
Perhaps most important of all, though, was transforming the culture of the company. South says “sales” had almost become a dirty word, but he changed the mentality, instilling a sales culture and leading by example to help land the big deals.
We said to clients: some people somewhere in New York had done some bad things. Stick with us. You know me and trust me and we’ll deliver”
Martin South, Marsh
In the wake of the credit crunch and regulatory crisis, there was also an opportunity for Marsh to push its credentials much harder as a risk management practice, boosting another revenue stream. And as for Spitzer, only 3% of clients defected, an “astonishingly low number”, South says, a pitch of surprise still evident in his voice four years later.
“We said to [clients]: some people somewhere in New York had done some bad things. Stick with us. You know me and trust me and we’ll deliver,” he says.
Underpinning all of these changes was South’s collaborative approach to management and involving staff in the decision-making process. It’s an interesting point because many US companies have a very top-down management style, where the bosses give orders and the staff follow. South says the autocratic leadership was needed when Marsh was in crisis, but as soon as the dust had settled, he changed tack.
“I was really pleased with the strong team culture we’ve had. It was not a dominate one-person-leader business. That’s not my style. I like to work with the team and paint a picture of what we need to do, and have other people come up with what to do and encourage them and guide them.”
During the interview, South repeatedly talks about the right culture in a company. It’s no wonder, then, that Marsh has been quite choosy about acquisitions and getting that perfect business.
During the buy-out boom pre-2008, Marsh was scared off by some of the sky-high valuations. But Marsh seized the opportunity when HSBC decided to hive off its insurance broking arm. The deal was completed in April 2010 for £135m. Marsh began to reap the rewards from the deal last year, with the acquisition contributing £56.5m turnover to the results.
Seeing as HSBC has been a success, could there be more UK acquisitions? There were rumours last year that Marsh was close to snapping up Oval, but talk has it that any prospect of a deal fell down over price.
South is not one to delve into market gossip, but he is quite clear over the sort of expectations Marsh has when it comes to buying a company: 10% earnings growth in emerging markets, and about 4% or 5% earnings growth allied to, say, 2% expense growth in mature geographies.
Typically, Marsh has done deals at between six to eight times EBITDA (earnings before interest, tax, depreciation and amortisation), but “it depends on the quality of the franchise and the quality of the people”, South emphasises.
Certainly, internally at Marsh, getting the best people is one of South’s passions. To lure in top-quality graduates, Marsh pays the same as the big four accounting firms. And the promise of working for the UK’s top broker has recently resulted in some 2,700 applicants for just 15 spots.
Marsh has definitely earned its place as the UK’s number one broker, but you can be sure that the ultra-competitive Aon won’t let its biggest rival get too far out of sight.
Snapshot: Martin South
First job: Working for reinsurance broker Minet, now owned by Aon
Family: Married, father of five
Interests: Keen tennis player and skier
In his own words: ‘I like to work with the team and paint a picture of what we need to do, and have other people come up with what to do and encourage them and guide them’
Snapshot: Marsh Limited
Market view: Marsh has turned itself around to become the UK’s top broker. It is strong in corporate and mid-market, with potential for growth in SME.