MBOs – the price of a clean exit without consolidation

Selling out to consolidators isn’t the only way for owners to exit a broking business. You can try a management buyout. But you’ll need patience and determination – and access to capital.

To the right owner, keen to protect staff and see their business run in the same way, selling the business on to staff already involved in the company can be an attractive proposition.

But as recent deals have shown, there continue to be disadvantages with the option which explains why they are not more prevalent.

Woodward Markwell last month completed an MBO involving 20 staff members purchasing the Ipswich based broker, which looks after £9m GWP, from former owners Andrew Johnson and Beverley Monk.

It was a lengthy process which took 18 months to complete, with the make-up of those buying the broker changing within that time.

Marketing director Toni Vincent-Panich conceded it had not been an easy process, but that Johnson and Monk were motivated by a care for their staff.

She said: “An MBO will never be easy, especially when there’s a number of staff involved, but we got through it.

“It was fairly long-winded, and it took longer than most of us would have anticipated, but we stuck to our deadline.

“The owners could have sold to a competitor or gone out to market, but it wasn’t really an option they wanted to take.

“They’ve always put employees first. It would probably have been an easier process for them to go and sell to a third party, but that’s not what they ever wanted for this company.”

Headed by the existing four directors running the company, who all took on the biggest share of the company, it means business can continue as usual. And having so many people involved, there was no need for external funding.

Woodward Markwell consists of 47 employees in total, and Vincent-Panich said the fact so many took a shareholding showed their commitment to being part of the firm’s future.

She added: “I think it will be challenging with so many shareholders, but we are a close-knit team, we work well together and the previous owners have worked really hard to create this model that works for us, so our plan isn’t to change what isn’t broken.”

Independence

Consolidation has been rife recently, hitting the memberships of broker networks like Brokerbility.

A benefit of MBOs is that the independent broker can remain a part of its network. Woodward Markwell will remain a part of the Willis Network, and Walmsleys’ MBO earlier this year meant it remained a part of Brokerbility.

Walmsleys, a Wigan-based broker placing £10m GWP and consisting of 25 staff, completed its MBO after six years in the planning.

Former majority shareholders Martin Bellamy and Michael Whittle rejected approaches from consolidators PIB and GRP, and the potential of a larger capital release, in favour of the MBO.

New owners Phil Wall and Steven Moore completed the deal in April.

Wall said: “The exiting shareholders are very independent people, and they would definitely not like working under the umbrella of another company.

“It gives them an exit where they can walk away on the date of the sale and not think about the business again.

“They don’t need to keep working on an earn-out basis over a period of years, suddenly having to report to a third party who owns you if you have to keep working in the business for three years.

“Reporting to other people would be hell for them, but they also wanted the business to carry on in the current format that it is, with the staff and how we do things, so it’s those two things combined that convinced them on the MBO.

“It’s not all about money and how much you can squeeze out of the business.

“They feel comfortable in the deal they’ve done, me and Steve feel comfortable in the deal that we’ve done and that’s how we’ve gone about things.”

And, while a lengthy process, Wall praised the ease of how the transaction was conducted, and said he and Moore would look to an MBO again when they seek to exit the company.

Private equity

Both the Woodward Markwell and Walmsleys MBOs completed without private equity funding.

But for larger independent brokers, completing an MBO is only possible with private equity backing.

And with that can come an external influence hard to separate from a private-equity backed consolidator taking a majority shareholding.

Coversure Insurance Services Group (CISG) completed an MBO in May backed by Livingbridge.

The deal saw former Willis International chief executive Tim Wright join the Coversure management team as a non-executive chairman, and Xavier Woodward joining as a non-executive director from Livingbridge.

But Coversure chief executive Bob Darling then spoke to Insurance Times saying the funding would give management the opportunity to proceed with its high street plans.

He said: “Livingbridge will be able to push forward our growth plans, and on the Coversure side our growth plans are based on the business model getting stronger and growing those brokers that we have on the high street.”

With the extra funding, there was also a commitment to supporting extending the product range, accessibility and investment in technology.

And he added: “The management buyout is great news for all concerned.

“It will allow us to invest in the business and offer even more customers and brokers the high standards of service for which the group has become renowned.”

But how the influence of this external backer will affect management decisions in years to come is to be seen.