The dos and don’ts for insurance brokers interested in buying or selling to their rivals

Mergers and acquisitions (M&A) activity in the UK insurance broker industry has attracted billions of pounds in investments over the past five years. Companies like Arthur J Gallagher have invested in Stackhouse Poland; Qatar Re invested in Markerstudy Group, the announcement making major headlines earlier this year; and Marsh and McLennan acquired Jardine Lloyd Thompson, doubling the size of the UK’s largest insurance broker.

With large sums of money being poured into such consolidations, now is the time for insurance brokers to be looking to sell to their rivals, or for those looking to buy, to keep an eye on those they are interested in acquiring.

According to a study from market analysts at Plimsoll, more than 170 companies in the insurance broker industry are ready for takeover. Consolidation, however, can be a tricky business – undoubtedly, insurance brokers may lose some clients after they merge, yet there is the potential for growth and new opportunities.

Issues to consider

So, what are some of the dos and don’ts of insurance brokers looking to buy or sell to their rivals? While the prospect of two companies coming together seems exciting, one of the first things to consider is not only the initial merging that will take place, but the actual integration afterwards. Improvements, efficiency, customer propositions, perhaps a single brand identity – it’s grinding work, but it’s the purpose behind M&A. True integration is good for all parties involved, the buyer, the seller, and their clients.

Secondly, don’t narrow-in too much during your search or have too many restrictions. The perfect company does not exist, and if it did, it wouldn’t be up for sale! Have an ongoing list of companies you’re interested in and continuously add/edit it – this will benefit you in the long run.

Get the timing right

Timing is important as well. If you’re looking to buy, monitoring your list of companies is essential. Three things to watch for include: how their performance and value changes over time; which get sold and to who; how much did they sell for and would your valuation have been a competitive bid?

Beware paying too much or offering too little when looking to buy a company. Most deals break down when an agreement on price cannot be reached. To ensure a fair offer, where possible get a detailed valuation of the company.

If you’re looking to sell, don’t be unrealistic about your worth. Those looking to acquire will be analysing your company’s history and their valuation may change based on the reputation of the company and certain circumstances they’ve deemed important. For example, if you are exposed to one supplier or customer, or if you have a recently declining value.

Attracting the right buyer is a crucial part of selling your company. It’s not just about finding one who has an abundance of money to throw your way, but also who in the industry has interest in purchasing. Make a list and monitor the insurance brokers who have the capital and who are looking to invest. Educate yourself on who they are buying, what they are paying, and properly time your approach. Look for companies that are two to 10 times the size of your company, have a high gearing chart (or, good cash reserves), and flat or declining sales. They will be eager to acquire a growing company.

And of course, be the strongest option available! Companies that achieve the highest valuations have a clear trading history and a proven track record in value generation. Even the most compelling arguments can be swayed by data.