Acquisitions - Acquirers patient despite consolidation warning

The last few years has seen an unprecedented amount of acquisition across the business world, with broking no exception. In particular, the rush to buy before the change in Capital Gains Tax feels like a different era. Many say that the world has changed, meaning there was perhaps too much emphasis on the present rather than the future. Bill Cooper, managing director of financial institutions at Lloyds TSB Corporate Markets, gave a warning in PB's sister title, Post, on 16 April that size alone would not prevent the need for future restructuring: "The days of these businesses going off and doing big acquisitions at two-and-a-half times brokerage ... are gone for now because virtually none of them has the cash or capacity to do that. Therefore, consolidators will have to look at growing in a slightly different way."

Chris Giles, chief executive at Giles, said that he understood Cooper's comment but that, with a large war chest, he is prepared to play the waiting game. He told PB: "The world has changed and performance and growth has stalled in many areas of general insurance. We are not finding sufficient data to agree a price and it is extremely hard to make projections. We don't want to overpay and can afford to be patient."

Stuart Reid, chief executive at Bluefin - Axa's broking arm - admits that acquisitions are slowing and says that he is concentrating on integrating the businesses that he has bought. (For example, he is bringing together a £10m book of professional indemnity through an office in Bristol.) He says that the broker is still on target to reach £1bn of premium in 2012, although in the 'old world', this would have been thought achievable more quickly.

Expensive

Alex Alway, chief executive at Jelf, said that his firm had not made any acquisitions in the last six months because they had been "over-priced" and believes that "nobody has a better opportunity than us for cross-selling", referring to his firm's mix of healthcare, personal and commercial lines. He added: "We are not going to stop buying if opportunities come through."

Suddenly, words such as cross-selling and upselling are all the rage but brokers are still struggling to produce coherent, high-profile marketing campaigns. Heath Lambert attempted to launch a new slogan 'Big enough to deliver, small enough to care' but only realised it was almost the same as Groupama's trademarked logo 'Big enough to deliver, small enough to care' after it had released the slogan to the press. Groupama said that the broker has agreed not to use the slogan.

In a profession awash with multi-million pound advertising campaigns, commercial brokers have struggled to capture the imagination of the public, though arguably there is little need to. Reid says: "Not one UK SME broker is well known to the public. We have been pretty bad at sales and marketing but it is hard to justify spending large sums, especially in today's environment; Bluefin was therefore a soft launch."

Another growth route for consolidators is to increase their MGA presences and Oval has just signed a capacity deal with Zurich called Unique to handle professional indemnity clients with premiums of less than £10,000. Giles has also expressed a desire to expand its Ink underwriting agency, though both of these moves come as large players such as Norwich Union and Axa are removing their support from these models. Meanwhile, Towergate is investing strongly in its electronic commercial insurance offering, PowerPlace.

Business as usual

Despite a slowdown at the top end of consolidation, there are still deals to be done: Bournemouth-based Brokerbility member Alan and Thomas is buying £2m gross written premium Blandford Forum-based Douglas King. Also, Hastings based Green Campbell Fisk (see PB Interview, p.28-31) is on the acquisition trail in the South-east corner.

Alan and Thomas chief executive Julian Boughton said that he is seeing greater willingness from intermediaries in wanting to talk with his firm about difficulties such as a "lack of new business sales and marketing strategies", as well as "increased competition from larger intermediaries with strong new business focus." On the other hand, there are a number of high profile start-ups emerging, showing that - even in these tough economic times - the broking world is in a state of flux.