Flotation is Towergate’s next move

Towergate chief executive Andy Homer could be forgiven for breathing a sigh of relief this week. In an interview with Insurance Times hours after the announcement of a £200m deal with private equity house Advent, he was characteristically upbeat about the consolidator’s future, and his own role and that of Towergate chairman and founder Peter Cullum.

But Homer still has to finalise a £570m corporate bond, plus bank debt facilities, by the end of next week. He refused to be drawn on the bond, citing stock market rules. Assuming it’s all signed off by the deadline, this marks the end of a long journey for Cullum and Homer. Towergate first sought private equity backing in 2008, when it attempted to sell a 25% stake to Candover for £800m – valuing the company at twice as much as today’s prices.

The deal fell through at the eleventh hour, reportedly over earnings projections. Towergate later sold a £100m stake to US hedge fund Och-Ziff, which had already invested in the business through an earlier purchase of £100m in preference shares with Reservoir Capital.

Asked why Towergate had selected Advent as its private equity partner, Homer told Insurance Times: “It goes back to when we were first looking, with Candover [another private equity investor]. Advent were the alternative – they have been tracking Towergate since then. We know them pretty well and we’ve always admired them.”

Advent has other interests in the financial services market, including insurer Domestic & General.

Asked how this week’s agreement compares with the Candover deal, Homer said: “This is completely different. When Candover were coming in, it was very much about them buying a share, and there wasn’t such an acute focus on succession and an IPO [initial public offer/flotation].

“Advent has a strong record on taking companies to IPO, usually within three to five years of their taking a stake.”

Homer added “We’ve got to this stage now. We have always said that an IPO is a sensible option and we’ve found someone who can give us that capability; we’re much more focused on that now.”

Towergate is not the only consolidator on the road to flotation. Its contemporary Oval has also talked about a flotation, and Giles is thought to be mooting the possibility sooner rather than later if it can make a transformational deal.

Oval chief executive Philip Hodson was warm in his congratulations. “It will be good for them,” he said. “It always made sense for them. We’re great admirers of Peter [Cullum] and Andy [Homer] and we wish them all the best.”

Homer and Cullum are not taking any money from the business – nor can their 4,500 staff expect a heady payday. About half the private equity cash will be pumped into the business, while the other half – up to £100m – will be used to buy up other businesses, according to Homer. But don’t expect a mega-deal: “We’ll concentrate on UK niche and regional brokers – we’ll tend to build around our existing UK network,” Homer says. “We won’t be targeting any of the large names.”

However, rivals do not fear Towergate’s new-found acquisition cash. “They buy different brokers to us, they buy SME-type brokers,” Hodson said. “Towergate never clashes with us. They will expand in the SME space and do very well. And in some of the specialist lines as well.”

Sister business CCV, also included in the Advent deal, will remain separate from Towergate until the IPO, although Towergate-owned network Countrywide and ebusiness company PowerPlace will now be housed under the same umbrella as the rest of the Towergate group.

Observers continue to speculate on the succession route that will be adopted by the Towergate board. Internal candidates Tim Johnson and Clive Nathan are the favourites to step up now that deputy chief executive Amanda Blanc has departed to AXA.

But market sources suggest that Advent will demand someone with experience of leading a company through an IPO should Homer decided not to continue in his current role.

Advent is also likely to seek an independent chairman as the company progresses towards flotation, meaning Cullum’s role could change, possibly to vice-chairman.

For more, read: Cullums Towergate stake dips to 40% as Advent enters.