Consolidating the community

It is hard to keep track of the rate of consolidation in the industry as brokers are snapped up across the country. Community Broking Group has been purchasing brokers in the north west and is now prepared to buy beyond what it calls its "heartland" - including north east Lancashire and the Merseyside.

One of the catalysts, according to CBG, is that "large insurance brokers can obtain better terms from the insurance companies". CBG's profile has been edging onto insurers' radars as it has grown, and a recent £4m gross written premium deal, which eventually went to Allianz Cornhill for small business risks up to £7500 of premium, saw seven insurers make presentations to the broker. Although Stephen Darcy, managing director of insurance broking operations, describes three out of seven of these as "dreadfully poor", from well-known insurers, and adds, "insurers need to improve internal communications to give staff a fuller understanding of how their broker panel is made up." Darcy continues: "The deal with Allianz is indicative of how we will develop our relationships with insurers going forward."

The business is a mix of commercial, including marine and engineering, and just over 10% is personal lines, which is mainly private corporate individuals. On the corporate side, 20% of the business is done on fees.

The most significant acquisition by CBG, which was listed in 2001, was Swinburne James, then owned by holding company Everfirst. Originally, Swinburne James was looking to sell its financial services arm and was talking to a number of bidders. However, CBG wanted to acquire both the broking, with £10m GWP, and IFA arms. Darcy said the main change was an insurer agency "culling exercise" where it consolidated over 200 agencies to seven and eight major insurers, and around five provincial specialists. Another acquisition was Manchester based ET Knagg for a maximum of £1.47m. A healthcare book was taken on following the acquisition of Spencer, Lavery Associates.

The CBG board has set an ambitious target of doubling premium income by the end of the year to around £70m. Darcy says: "One of the main challenges of an acquisition is the relationship with the vendor. It is important not to be too imposing of the CBG culture." A deal structure where the owner managers could be given shares in the business and a place in the management team is also an attractive and potentially persuasive offering. There is a dedicated acquisition team that includes non-executive chairman Laurie Turnbull, who was former chief executive of Manchester-based venture capital Texas Group, and has been active in numerous acquisitions and flotations.

The firm listed on the AIM stock-market in 2003 and now the total shares are worth around £17m. Revenue in financial year January to December 2006 increased to £5.15m compared to £2.91m in 2005. Pre-tax profit hit £919,000 in 2005 and the company is looking to smash its broker's forecast of £6m of revenues in 2007.

The broker has moved onto Sirius 21 in all its offices, which are now integrated with the software platform.

CBG has also diversified into another lucrative revenue stream. It has an in-house premium finance division Exius, acquired in March 2005. Meanwhile, CBG Sports is a specialist operation for professional sports people covering injuries and private household. The arrangement is with appointed representative Nottingham-based Kingsbridge Asset Management, and it advises over 600 UK-based footballers, managers and staff from 92 professional football clubs. It also advises clients on rugby, cricket, golf and racing.

There is also a corporate transactions unit that investigates due diligence, mergers and acquisitions, and works in conjunction with accountants to analyse the insurance elements.

With several acquisitions in the pipeline and there are likely to be some announcements in the coming months as CBG ramp up their attempts to consolidate brokers. One thing that brokers cannot complain about is lack of choice over who they sell to.

COMMUNITY BROKING GROUP

Managing director - Stephen Darcy

Established - 2001

Number of offices - Five

Location - Manchester, Liverpool, Burnley, Poulton-le-Fylde, Blackpool

Number of staff - 108

Lines of business - Commercial

Gross premium income - £34m.