New partner to help with IPO process

Towergate’s new private equity backer will help the company manage the initial public offering (IPO) process in 2013 as well as taking equity in the broking group, according to group chief executive Andy Homer.

Towergate has signed a preliminary agreement with a private equity firm which, if talks are successful, will see the anonymous company take a minority stake in the broker in January or February next year.

It is expected that the investment will net the broker hundreds of millions of pounds, but the exact size is unclear as terms are still being negotiated.

“The private equity partner will add strength to the board and help the board get in shape for an initial public offering,” Homer told Insurance Times.

“If the deal goes through, the private equity firm and ourselves will immediately start to plan the IPO. It will take place in two or three years, depending on the insurance cycle.”

Towergate is seeking the backing to improve the terms of its long-planned £665m bond issue, which will replace its current outstanding debt, reduce the number of outstanding preference shares and give the broker a £100m acquisition fund. It is expected that the private equity financing will trigger the bond issue.

Towergate had £626.6m in debt at the end of 2009, and made interest payments of £52.9m during the year.

The bond refinancing in turn will make Towergate more attractive to investors in preparation for its flotation. The private equity backing will also make an IPO almost inevitable, as private equity investors typically want to get a return on their investment within three to five years.

“The private equity investment would make the IPO much more of a certainty for everybody in the business,” says Homer. “They would all know it is the course we are going to take rather than it being speculative.”

Homer added that the new investment would not be used by Towergate chairman Peter Cullum and himself to take money out of the company. “We will all be in it together to take the company to market,” he said.