The house Giles built

Drill down into the latest accounts of Giles, and there is an interesting story. The bulk of the debt repayment is long-term. It means that Giles has a lot of breathing space as he builds up the company for a profitable exit for shareholders. So the question is, especially in these current difficult economic times, will he achieve his ambitions?

Chief executive Chris Giles will have to achieve two things: firstly, give the broker critical mass and secondly, smooth the way for a float or sale.

In looking to build up the firm, Giles will want a transformational deal to boost the company’s gross written premium. It’s not going to be easy. You have to ask yourself how many large-scale brokers are out there for grabs and secondly, will they want to work with Giles? Possible options include a part or all whole sale of Jelf, if the West Country firm sells up.

Perhaps the best deal would have been a merger with Oval, proposed by Giles’ private equity backers Charterhouse, but the deal fell through last year. If he can’t seal a transformational deal, Giles will essentially have to plod on buying smaller brokers, tapping into Charterhouse’s war chest, which is anywhere up to £300m. There are plenty of brokers willing to sell, at lower multiples than a couple of years ago, it’s a question of whether Giles can achieve his ambitions on a such a piecemeal path within the three-year timeframe he has set out.

Assuming he successfully builds up the companies gross written premium, he will have to convince investors on flotation or potential buyers in a trade sale, that the firm has value.

Giles current accounts show the firm has net debt at around £220m, the bulk of which will have to be paid back after five years. Those figures will be taken into account at some point.

Meanwhile, Giles says he has no problem servicing the interest payments, which were £31m for 2009 and there will be no breaching of banking covenants.

If Giles fails to pull off a deal before the bulk of the debt repayments start, which is sometime beyond five years according to the accounts, life could become very tricky. The debt repayments are considerable.

The business has been built for a float or sale, it’s clearly what the deal with Charterhouse was all about, but neither parties suspected they might have to do it in a soft market or stagnant economy.

See story: Giles says 22.6m loss will not affect deal time frame.