Bedford and Maxted - Performance to bank on

Financial media is alive with journalists coining phrases to describe the state of the financial system. We have seen 'crashing into a brick wall', 'falling off the rails' and many other takes on the theme besides. Yet, has this purported apocolypse actually occurred? Oval's recent refinancing provides an example of banks still willing to lend in an economic environment where credit is extremely hard to obtain.

Similarly, private equity firm Hellman & Friedman's takeover of broker software house SSP and LV='s £200m acquisition of Highway provide further examples of insurance's being considered an attractive investment opportunity, despite an overall sense of negativity in today's financial sector. Another example, albeit on a smaller scale, is the management buy-out, completed on 23 September, by Andrew Bedford and Tim Maxted of the general insurance arm of Leicester-based Berkeley Burke.

The MBO was first mooted about 18 months ago, when Graham Berkeley started to investigate options for his succession. Luckily for Maxted and Bedford, they had a good working relationship with Berkeley, who, according to Bedford, was being approached by third parties all the time. Bedford says: "There were discussions (with outside buyers) but the parties did not fit what we wanted to do. We decided quite early on that we would buy out the general insurance arm to allow him (Berkeley) to concentrate on the financial services. It was not confrontational and there was never a moment of dispute. We agreed a heads of agreement early and our advisers' role was to legalise the deal."

Bedford and Maxted combined debt and equity to finance the deal and now have equal shares in the firm, which is set to be renamed Berkeley Insurance Group with Maxted as group chief executive and Bedford as group chairman.

Preference

Berkeley was especially keen not to sell out externally. In a letter to all his staff, Berkeley talked about "negative emotions" from the time when he worked at an international Lloyd's firm that was taken over by a competitor. He wrote: "The experience of being 'sold' had a lasting impression on me." In July 1973, Berkeley helped to form Berkeley Burke with other directors from Stewart Smith, which was merged with Matthews Wrightson to create Stewart Wrightson. Coincidentally, Aberdeen-based Central Insurance Brokers, another broker founded in 1973, has also been the subject of an MBO recently. At the opening of Central's offices in February, managing director Iain Henry said: "We are here for the long haul and we will make sure Central is independently owned for at least another 30 years."

The Leicester-based duo, who also have Luton and London offices, used local advisers and solicitors to facilitate the deal. In addition, they tapped finance using the expertise of Australians Macquarie bank, which came up to see them from its London office. Maxted has been extremely happy with the bank, which he says "stood head and shoulders above the rest".

However, one of the trickiest aspects of the deal has been the fluctuation in the Libor rate as the financial crisis has played out; it has been long out of kilter with the base rate, meaning that many firms are struggling to raise funds at competitive rates. The monthly interest on Berkeley Insurance Group's debts will vary, though the company is taking action to desensitise itself to fluctuations and is keeping its cost base down. The duo appear confident about what they have negotiated.

Bedford and Maxted, despite being relative newcomers to the firm, are well placed to lead Berkeley Burke into its next phase as, since joining, there has already been a significant rise in growth. Concentrating on businesses with turnovers of between £5m and £100m, the company has just achieved its best-ever earnings figures, for the year ending June 2008.

On the train journey from St Pancras International to Leicester, I inadvertently walked past one of their client's projects: the brand-new shopping and residential site that surrounds the station. The firm has also been involved in one of the largest private construction contracts at White City. The business' construction side is backed by key sector insurers such as Ace, RSA, Zurich, Norwich Union, Axa, Lloyd's and Mitsui.

Culture

The broker's philosophy is to cultivate expertise across all sectors of its insurance provision. Citing an example in solicitors' professional indemnity, Maxted points out that many brokers that came into the market when it was opened up still do not understand the product and that quality makes a huge difference. Maxted says: "We believe in driving professional standards. Whether in construction, hotel and leisure, charities or professional indemnity, we believe in market expertise."

Bedford and Maxted also believe that they have an in-depth knowledge of directors' and officers' cover - they have the ability to write the wordings for clients as well as delve into the product's nuances. Bedford explains: "Everything we do is bespoke. We offer a full claims service and run an old-fashioned, service-driven business."

Warming to the theme, Maxted recalls a client whose first call to Bedford was made on his mobile when he had an accident at a roundabout. Despite being in a meeting, Bedford was able to organise a tow truck and hired car for his director client within hours.

In order to help drive service standards, the broker has invested in professional development, achieving CII chartered status at the end of March. Helping to keep the staff happy is a "generous benefits package" and there is also a well-developed corporate social responsibility strategy, as Maxted highlights: "Our staff turnover is low. We work with the Prince's Trust and major local charities. We also have a recycling policy that encourages electronic communication (in order) to reduce paper."

The partnership between Bedford and Maxted appears to be one of mutual respect and they say that they kick ideas around constantly - the carpet between their offices is recognised as the most worn bit of the building. Maxted comments: "We have different skills sets and recognise the strengths of each other." However, their partnership lets them down temporarily when, during the interview, Maxted announces that he has a fortnight's holiday to come by the end of October - what he claims is his first holiday of the year. Bedford is adamant that he was set to take only one week.

Although predominantly UK-based, Berekley Burke has clients in Ireland and even the Solomon Islands. It has a strong retention rate with an existing gross written premium of £36m.

Growth plans are also in place. Over the next five years, the duo want to achieve over £10m in revenue and believe this to be a "realistic challenge", explaining it in terms of attracting the right staff, acquiring new clients, increasing specialist trade and making strategic acquisitions. Areas earmarked to build on include the high net worth book, which they want to "significantly develop".

Staying independent is very much at the heart of the plan to achieve this growth. However, its standing as the largest member of the Willis Commercial Network has not yet been clarified because the MBO and the brokers are keeping their cards close to their chest.

Although the broker shares an office with its financial services namesake, Bedford and Maxted feel that there are not significant opportunities for cross-selling between general insurance and financial services. Bedford is straightforward and opinionated about this: "Cross-selling between financial services and general insurance doesn't work. You never achieve total penetration. Just because you are an adviser on one side, it doesn't follow through (that you can cross-sell). Sometimes it is better to have separate advisers.

"When estate agents were bought by life insurance companies to sell their products, it didn't work. People are loathe to disrupt professional connections, although in principal it should work." Maxted agrees: "I haven't seen anyone do it to a great extent, although somebody might have the silver bullet."

An apt demonstration of the close relationships that exist in insurance, Bedford joined from Bland Bankart, which was sold to Oval for £20m in April 2004. Recently, a four-member team from Bland Bankart's Luton office (now Oval) was acquired by Berkeley Burke, leading to a legal dispute that was settled out of court for a six-figure sum that PB has learned was in the region of £400,000. The duo appeared relatively relaxed about the case, perhaps because Tim Maxted is also a barrister; at the time of the settlement he said that he was "delighted". Intriguingly, Oval's chief executive, Phillip Hodson was also "delighted" with the verdict. Such disputes are set to continue and appear to have become very much part of broking culture.

Gratitude

Following the conclusion of the MBO, Graham Berkeley wrote in a letter to his employees: "I would like to take this opportunity of wishing Tim, Andrew and their team every success in the future and look forward to the continuing growth of the business to make its mark as one of the leading general insurance brokerages in the UK." This amicable MBO appears to have allayed any fears that Berkeley had about giving up his stake in the business and shows that consolidation or strategic buying is not the only option for those considering their exit.

The next few years will be challenging but Bedford and Maxted appear to have the confidence and industry knowledge to maintain the firm's culture and still grow significantly, assuming that the Libor rate does not spiral further out of control. These are difficult times for businesses but, however gloomy the environment, you cannot dampen the spirits of knowledgable, ambitious professionals. Long may that continue.

ANDREW BEDFORD AND TIM MAXTED

Andrew Bedford, 56, started off in insurance as an A-level trainee by becoming an underwriter in Commercial Union's Harrogate office in 1971. He left to join Ilkley-based broker Yates and Son, which specialised in fairground attractions in the days when brokers "were king", especially for young insurance executives. Bedford has worked for eight brokers, including Minet, Hogg Robinson and Leslie and Godwin and, in a sure sign of market consolidation, all of Bedford's previous employers have been bought, although coincidentally only after he had left on each occasion. Bedford then worked in London for Hogg Robinson and Minet before joining Blank Bankart in Leicester. Bedford left Bland Bankart, along with three other employees, in 2001 to become chief executive at Berkeley Burke's insurance arm, then recruiting Maxted, 37, in 2003, along with 14 staff from Bland Bankart, which by then had been bought by Oval. Maxted had been tempted to insurance from being a barrister because he says he "had an interest in commerce" and was intrigued by the potential of being someone with a legal background in the insurance industry. Maxted became divisional director of specialist risks at Bland Bankart and subsequently the managing director of professional indemnity at Berkeley Burke. At Berkeley Insurance Group, Bedford is now group chairman, with Maxted as group chief executive.