Briefing: Where next for Brendan McManus and PIB?

Brendan McManus is a man on a mission. Backed with firepower from private equity giant Carlyle, the acquisition of Citynet was the chief executive’s 12^th in 19 months.

It has been a breathless ride from PIB since Carlyle acquired its stake two years ago, teaming up with McManus and shareholder Chris Giles (both pictured).

So what does this latest acquisition mean? And where next for the PIB?

PIB is a diverse consolidator consisting of acquisitions including MGAs (Thistle), personal lines brokers (Fish), SME brokers (Cooke and Mason) and now a wholesale broker, Citynet, has been added.

Interestingly, Citynet has its own underwriting division and PIB also owns the Thistle MGA, so there might be some convergence there.

The price of the acquisition is not public. However, Citynet’s latest accounts show £2.6m EBITDA and £9m net brokerage.

One market source told me PIB had paid £35m for the Citynet with half up front and the rest on a three year-earn out, although that figure and deal structure was later dismissed as ‘way off’ by somebody close to the deal.

We do have information on the historic prices paid by PIB from its accounts.

PIB’s accounts show it paid £24.5m for Fish (2016: profit before tax £3.4m) and £21.3m for Cooke and Mason (2015: Profit before tax £1.7m) – both in cash.

The multiples there are between seven and 12, although it is important to stress that there are different metrics and ways of agreeing purchase price. 

PIB sale

It’s clear that PIB has plenty of firepower and next year will bring another big pipeline of acquisitions.

Private equity usually works on a three to five year timescale, so it is entirely possible that by this time next year, PIB will be thinking carefully about its exit route.

So the question begs: who will buy it?

PIB has bought profitable, respected businesses. 

On its current structure, it has a lot of different businesses that may appear non-core for the likes of a trade sale buyer, such as an Aon or Marsh, to purchase as a whole.

However, it’s important to remember that Bluefin and Jelf have a lot of niche and specialist business yet  they both achieved a good price from Marsh.

PIB will need to ‘institutionalise’ the firms it has bought, meaning that once the entrepreneurs who started them have gone, the brokerage sticks and doesn’t eek away to rivals or at worst, the founders starting up again. 

Improved corporate governance and a robust regulatory framework, especially in light of the Bluefin scandal, will also go a long way to assisting a trade sale. 

Elsewhere, sale to another private equity house, or even bringing in a sovereign wealth fund investor, is also a possibility. 

Arguably, a tougher route would be a flotation in that they would need to convince institutional investors of a business model that is not the norm for listing. 

Gaining scale

The key now is for PIB to gain more scale through acquisitions as it, in all probability, reaches mid-way to an exit point.

It can also use its scale to leverage more commission from insurers, although some will resist - with underwriting profitability around 5% on books of business, there is not much to give away. 

PIB landed at number 28 in this year’s Insurance Times and IMAS Top 50 Brokers, with £50m brokerage, and it will charge up the rankings in 2018 with more acquisitions.

With GRP, Ardonagh Group and Aston Scott all also showing acquisitional appetite, the consolidation of UK broking shows no sign of slowing down.