Towergate in control despite credit crunch

As the wider economic market suffers from a global credit crunch, Towergate has managed to raise an additional £276m without anyone blinking. Every company, bank and private equity house out there is struggling to raise capital and yet HBOS has absolutely no qualms in lending Towergate's burgeoning business even more money to expand. Evidence of the repercussions of the market turmoil has emerged with a report saying that the private equity arm of US investment bank Goldman Sachs failed to raise the money for a £700m bid for reinsurance broker Benfield.

The money raised by Towergate to purchase Open GI is in addition to a further £200m still available following the acquisitive broker's refinancing at the end of last year. And chief executive Andy Homer has said that banks are competing to provide further funds and that raising a further £200m for its independent financial adviser push will not be an issue.

Although Homer has admitted the price for the software house is "quite expensive", the healthy profit margin at the software house will be extremely attractive to Towergate's directors. However, it remains to be seen how the price will look in a year's time as we are unclear about Towergate's plans for the business. We can presume the £3bn premium income controlled by Countrywide's 700 brokers will be of interest especially as Towergate has a suite of commercial insurances at its disposal which it could potentially roll out.

Placing Towergate's debt funding in perspective, it is worth remembering that private equity deals are funded on debt, including Kohlberg Kravis Roberts' acquisition of Alliance Boots, which included £9bn of debt financing. The AA and Saga are also debt-heavy entities, and chief executives appear relaxed as long as earnings remain high. Arguably Towergate's chairman Peter Cullum has adopted the mindset of a private equity purchaser, although there hasn't been a proposed exit - yet. What is certain is that his business can no longer be compared to its peers.

When he announced his 2006 results, Peter Cullum said he was "entering the most exciting phase of his career". With another three big deals in the pipeline, these certainly are heady times for a company that existed only in the imagination 11 years ago. Although we do not know what requests for finance the banks may have rejected from Towergate, the broker appears to be favoured by banks whatever the market conditions.