The consolidator consolidates

The Towergate Partnership controls a massive £1.1bn gross written premium and plans to grow to £2bn GWP by the end of 2006.

Chairman Peter Cullum says: "We announced our intention to merge in January and began behaving as one company from 31 March, although the legal details will not be completed until the end of June. Cost-cutting is not a driver behind the merger, we do not want to cut staff, but want to continue to grow. We decided to merge to put us in a better position for a public listing."

In the next two to three years, provided there is a strong enough appetite in the market, the Towergate Partnership plans to go public. Cullum adds: "We have to make the decision whether or not to list by the middle of next year (2006) in order to prepare ourselves for a 2007 listing, and it makes sense to do so as a single entity in order to gain support from financial institutions."

The merger has also provided an ideal opportunity to buy back The Royal Bank of Scotland's equity stake in the business, the terms for which are expected to be agreed shortly.

Cullum says: "In simple terms, RBS owns 25% of the business. We aim to buy this back through debt finance so the management and staff will own 100% of the company. This is important from an emotional point of view as we created the business and, therefore, would like to own it.

"Venture capitalists tend to be short-term investors and we have been with RBS for seven years, so it is also the right time for RBS and it will make a super return on its investment."

The newly merged company employs more than 2000 staff at 84 locations.

Senior roles within Towergate and Folgate remain largely the same, with Andy Homer as chief executive officer. It has also appointed Max Carruthers, former joint CEO of Rubicon, as director for IT, claims and e-commerce.

The Towergate Partnership has two main divisions: north and south, each encompassing two regions. Additionally, it has a division for the London Market, plus sales, marketing, finance and compliance divisions.

The Towergate Partner-ship's central office is located at the Towergate headquarters in Maidstone East, Kent. In the coming months Folgate's head office in Sevenoaks will be closed and employees will be relocated to Maidstone.

Despite the move, things will remain much the same for employees. Cullum says: "The biggest challenge I have is trying to maintain a small-company culture. We do not want the headquarters to define everything and, therefore, the many offices will remain largely autonomous and have full responsibility on a day-to-day basis."

Growth and acquisition

In terms of growth, it will also be more of the same - with a significant pipeline of acquisitions planned for the Towergate Partnership. In addition to organic growth, it is looking to purchase regional brokers, secondary intermediaries and insurance specialists.

Cullum says: "We have a war chest of £150m for acquisitions. I would expect over the next two years to make another 40 acquisitions and we already have a raft of them at various stages of negotiation."

To date, Towergate has made 50 acquisitions. It has a gross premium income of £325m and employs more than 700 staff at 27 locations.

It is due to appear for the third time in The Sunday Times Profit Track 100, which features the 100 companies in the UK with the fastest-growing profits.

Cullum says: "Towergate has come a long way since its formation in 1997. We always knew that a window of opportunity existed to acquire and develop specialist underwriting agencies. However, we could not have imagined that demand from both potential vendors and insurers would enable the group to grow to over 20 operating divisions."

Founded in 2002, Folgate has also achieved rapid expansion with 37 broker acquisitions under its belt. Folgate has a gross premium income of more than £750m and employs more than 1250 people at 54 locations. It will shortly announce the acquisition of an internet distributor, which will enable it to significantly enhance its online operations. In addition, £10m has been set aside to develop e-trading and Cullum believes this will create huge opportunities to develop new business across the group.

Cullum describes the creation of Folgate in 2002 as 'Towergate Two'.

He says: "Towergate was set up as a virtual insurer for schemes and niches placing business with a preferred panel of insurers and Lloyd's syndicates, while Folgate was for regional broking. They operated in different markets so it made sense to keep them separate at the time."

Cullum argues that there is no conflict of interest between its insurer and broker arms and says there will be no pressure on its brokers to place business with the Towergate Partnership. He believes that brokers will be attracted to its wide range of products, high levels of service and its flexibility.

He says: "We have specific products that are designed in conjunction with our insurer partners that are not readily available directly. Also, the big insurers do not favour a lot of small brokers and it is difficult to obtain quotes and a decent level of service - we offer a better alternative. We deliver quality products for our customers and, in so doing, make profits for ourselves and our underwriters."

With regard to the Spitzer enquiry and the issue of inducements and contingent commissions, Cullum says: "Spitzer has caused a lot of people to sit back and rethink the way they are running their businesses. But there is no evidence of bid-rigging in the London Market. We are happy to disclose our underwriting profit shares on our underwriting agencies to our clients, bearing in mind that, in most instances, our customer is the broker and not the end-user."

He adds: "We will not be entertaining volume overriders and see them as something that will become a thing of the past as there is potential conflict where you give an insurer more business if they pay you more commission."

Market consolidation

Fuelled by the onset of Financial Services Authority regulation, market consolidation presents a huge opportunity for the group, according to Cullum.

He says: "FSA compliance is far more expensive than was anticipated two years ago and, with a softening market, there will be a decline in broker profits. Some brokers - in particular secondary intermediaries - may choose to sell rather than carry on.

"In addition, many brokers are getting too old to carry on and are looking to exit. In general, service from insurers has been poor because they have been involved in their mergers and their systems do not work as well as they should. There has been limited quality capacity available, to smaller brokers in particular, and now regulation by the FSA has come along adding to pressures - it is real and it is painful. I am convinced that there is going to be a lot more activity in the coming months."

However, Cullum warns brokers not to expect huge sums for their businesses despite having succeeded in becoming authorised by the FSA.

He says: "A lot of brokers have missed the opportunity to sell their brokerage at peak price. The market, in many areas, is going soft and, if the rates are lower, commissions will be lower and earnings will be lower - consequently the best time to have sold was last year."

The acquisition trail has not always gone smoothly. Folgate has acquired brokers that are used to running their own business and, as a result, often find it difficult to adapt to a large organisation, admits Cullum.

He says it is important that acquired brokers do not lose their flair for business and he believes it has measures in place to ensure the transition is smooth.

He says: "When brokers make the move from running their own business to becoming part of a group that they no longer own - having been in that position myself - emotionally, you go through a bit of a roller-coaster ride. We have put a lot of time and energy into making sure that people feel comfortable with what is Towergate and what is Folgate and what is now the Towergate Partnership. We do not succeed in every case, but staff development and satisfaction is very important to us."

A large part of the success of both groups is due to the dedication and hard work of the staff, according to Cullum.

He says: "We have a simple mantra, shared by both companies - to make money, have fun and do some good. Every office has a budget for fun activities and, last year, we took 600 people to Brussels as a thank you for all their hard work."

The Towergate Partnership does a lot of work for charity and is planning to build its own hospice funded by donations from customers, which will be matched by the group. It has already raised more than £250,000 and hopes to raise more than £2m each year.

Cullum says: "The idea of giving something back really does galvanise people. The moral values of an organisation are increasingly important to good-quality graduates. Nowadays, to attract the best, it is not just about a big salary."

Business and employee value

Employees share in the success of the company through participation in a share scheme, with 2% of the company shares held in an employee benefit trust. All staff are eligible to own shares in the company following one year's service. Following a listing these shares will be sold and the proceeds divided.

He says: "The business is becoming worth quite a lot of money from a flotation perspective, which is good news for its owner/managers and all staff could receive a windfall."

According to Cullum, the Towergate Partner-ship also offers great career opportunities. He believes that its training academy will ensure there are good managers coming through who will be able take over the reins and he plans to move to a non-executive role in the next three years.

He says: "We have created our own training academy to train managers. We have also recruited a stronger team over the last 18 months at executive level and are in a strong position going forward."

In response to those that say the Towergate Partnership is growing too fast, Cullum admits that it is potentially a fair criticism. He says: "We are growing very fast and are very ambitious and we see a really unusual window of opportunity that we have to grasp over the next couple of years.

We do not have the luxury of a 10-year plan that we can execute in a more orderly fashion - we believe that we have to do it now."

CV

2005: chairman, Towergate Partnership

2002: established Folgate Partnership

1997: formed Towergate Underwriting Group as chief executive

1996: group marketing director, Hiscox

1991: chief executive, Economic Insurance Co.

1982: UK marketing manager, ITT London & Edinburgh

1979: marketing executive, Commercial Union

1975: joined Commercial Union

1969: trainee underwriter and new business executive, Royal Insurance Group.