Cullum, Utley and the Hastings MBO

See story: Cullum linked to Utleys bid for Hastings and Advantage

Peter Cullum could prove to be the white knight in the IAG UK sell-off. Insurance Times reported this week that Cullum, founder of broking giant Towergate, could step in to bank roll a management buy-out of part of the IAG UK business – personal lines broker Hastings and insurer Advantage.

The deal is believed to be one of a number of options being considered by IAG UK boss Neil Utley, who has been charged with selling off a chunk of IAG’s UK operations (Equity Insurance Brokers is also on the block). A trade sale or a deal involving private equity are also being considered.

Utley would be non-executive chairman of the bought-out operation under the Cullum scheme.

An investment from Cullum is not as surprising as it may first seem. In the current economic climate, acquisition finance, particularly on the scale needed to fund the buy-out of Hastings and Advantage (IAG paid £140m for Hastings), will not be easy to raise. A private investor, such as Cullum, with a personal fortune estimated at £1.7bn, could provide much needed capital.

It is easy to forget that outside Towergate, Cullum has been prepared to put his own money on the line. He is one of a number of investors in broker acquisition vehicle CCV, run by former Towergate Underwriting boss Tim Johnson. Cullum also made the tabloid headlines with an unsuccessful £20m bid for a majority stake in Norwich City Football Club.

The scale of any investment by Cullum in a Hastings/Advantage deal is not clear at this stage, but it is unlikely that he would be the only backer.

Certainly, Hastings and Advantage, a Gibraltar-based personal lines insurer, could be a good deal for the savvy Cullum.

Australian insurance giant IAG mistimed its acquisition of the two companies, buying in a softening motor market and underestimating the length of time it would take the market to recover. The motor market has since begun to recover, with rates edging upwards.

A lot of work has also been put into knocking Hastings and Advantage into shape, sorting out pricing, distribution channels and marketing. Cullum would be buying into a business in better shape and at the right point in the market cycle.