Ashwin Mistry: Independents rising in new world order

In a market where organic growth is exceptionally difficult, the management of consolidators will continue to seek acquisitions to satisfy their shareholders’ growth demands. So I anticipate an acceleration in the acquisitions market in the coming months. But I also believe we are now in a much more mature and complex environment than we were in 2006/07. The belt-tightening of the credit crunch and the recession has brought a new perspective to both buyers and sellers.

Buyers are no longer fixated on purely financial criteria and, quite correctly, they want to do “due diligence” on all the assets of a target brokerage, especially its stakeholders. Will factors such as duplication of resources, impairment of a distinctive regional character and loss of key employees destabilise the model that has been created and reduce its ultimate value?

At the same time, many independent brokerages are much better, tighter businesses than they were four years ago, so their owners and major shareholders have a greater array of options available when they want to cash in their chips.

There are new and different pressures on majority shareholders looking for exit strategies, too. Planning for retirement is no longer straightforward in a business environment with no fixed retirement age, where interest rates are low and buyers are less inclined to put piles of cash up front. Consequently, many independent brokers are beginning to see the logic of selling to the incumbents in the business, either through an MBO or via structured succession planning.

I can see these factors taking the independent spirit to new heights. Corporate clients want to deal with insurance professionals with faces and independent brokers can offer them the choice and distinctiveness that most of the national brokers have abandoned.

Independents are also attracting some of the brightest young talent. It’s crucial to encourage the next level of people to come through and to attract the brightest graduates and the new ‘starbursts’.

Today’s insurance world, with its regulatory and rating environment and the unprecedented difficulties in raising credit, is not an easy place for start-ups. Who, hand on heart, would recommend that anyone remortgage their house in expectation of business profits in two or three years? Through enlightened strategies for structured succession and profit sharing, independents are providing the stimulus for new talent from within and outside the industry.

Good independent regional brokers will succeed in the harshest markets, but a good broker doesn’t automatically have the makings of a good businessman. And these days, they are operating in a business environment, where obtaining lines of credit for future growth can involve protracted and often fruitless negotiation.

That’s why independents are turning to regional networks. Many have helped their members to share back-office and capital-raising resources, freeing them up to get on with their job of serving their clients. The model also provides resilience and continuity when a senior shareholder retires, by supporting the younger management to keep the business pointing in the right direction.

I have no doubt that independent brokers will be the stimulus for new talent entering the insurance broking sector over the next decade and that active succession planning is the way to hold on to the entrepreneurs of the future. IT

Ashwin Mistry is chairman of Brokerbility