Will the credit crunch stop the acquisition frenzy in its tracks?
Big boy brokers have expressed optimism in the ongoing pursuit of super-consolidation in 2008, but if recent reports are to be believed, the credit crunch may throw a massive wrench in growth plans.
According to research published by Insurance Times’ parent company Newsquest Specialist Media, one in five brokers could disappear from the scene over the next 12 months as offices close and companies merge.
Thirty eight per cent of respondents who had received takeover approaches in the past 18 months said they received them from Towergate.
This comes amidst reports of banks tightening the purse strings due to the ongoing credit crunch crisis.
According to Deloite, those acquisitions currently in the pipeline are looking to go ahead but following that there will be a noticeable lull in the consolidation frenzy.
Ian Clark, corporate finance partner at Deloite said: “The acquisitions we see will be less costly and lower volume.”
The acquisitions we do see during 2008 are not likely to be as high value as the deals that dominated the industry last year.
Traditionally broker acquisitions had been funded by companies willing to take on massive amounts of debts, but with banks becoming increasingly more cautious about lending, they are significantly reining in debt capacity.
Clark said: “This will change people’s ambitions when it comes to mergers and acquisitions. The pace of consolidation will slow.”
Of the 378 senior and client-facing staff in the broker business surveyed by Newsquest, 5% already completed a merger and a further 4% expected to do so within the next 18 months.
Regardless, the next 12 to 24 months will be interesting to watch as it promises to be an eventful time for the broking market.
