Davies fast but focused – Analysis

A conversation with Davies chief executive Dan Saulter is an exhilarating experience.

He is a quick thinker and talker. Ideas and concepts come thick and fast, and you need to have your wits about you to keep up.

The development of Davies since Saulter took over in 2013 has mirrored this aspect of his persona. The claims firm’s growth and expansion into new areas has been rapid, such that the Davies of 2017, while still retaining a strong kernel of loss adjusting business, is barely recognisable as the company Saulter joined four years ago.

If financial performance is anything to go by, this approach is paying off. Davies is now comfortably profitable from both an earnings before interest, tax, depreciation and amortisation (EBITDA) perspective and on a statutory level, which it was not when Saulter took over (see chart).

But even that is not enough. Saulter has told new majority owner, private equity house HGGC, that the company can double in size in terms of revenue over the next two to three years.

How can it do this without losing its focus, and becoming one of the cumbersome companies that it has been such an effective alternative to over the years?

Rapid expansion

When Saulter first took over, Davies was a well-respected, solid, but arguably underwhelming UK property loss adjuster, which was underperforming financially.

Saulter, whose previous role was head of M&A at Towergate, set to work almost immediately, shaking the company awake with a series of deals.

He added liability capabilities with the acquisition of Garwyn at the end of 2013 and pushed into Ireland by buying loss adjuster Associated in February 2015.

The earlier deals were aimed at building out Davies’s core competence of loss adjusting and claims handling. But more recently the company has started to branch out beyond its traditional heartland.

2017 in particular has ushered in a new chapter for Davies. In January private equity firm HGGC bought Davies from previous private equity owner Electra Partners.

Its first deal after the HGGC acquisition – Cynergie – propelled Davies into outsourced regulatory and complaints management. Its third post-HGGC deal, Ambant, pushed it into insurance services – offering consulting and operations management to MGAs and Lloyd’s and non-Lloyd’s insurers.

Most recently it has branched out into market research by buying customer experience and analytics business ServiceTick.

For what had traditionally been a claims-centric business, these new deals may seem haphazard. But Saulter insists that they work very well together and present cross-selling opportunities.

He says: “If you look at the client concentration in Davies, Ambant and Cynergie we already have quite a high degree of overlap.

“We know we can deliver claims solutions, insurance services and complaints and compliance [solutions] into our client base and they want to buy those services.

“We have proved out the story already because we can see commonality in the client base. The trick now for the next year or two is to get out there, tell the story, and win some more accounts across those areas.”

The addition of new capabilities also reflects where Saulter and his team think the market is heading. He believes insurers, MGAs and brokers want a smaller number of deeper relationships when outsourcing core functions, which means that if they can find a company that can offer several of the functions they need, that company is likely to stay on the list.

He says: “It was entirely normal, even back in 2013 when I joined Davies, for bigger insurers and MGAs to have quite a large number of relationships across different areas. What’s happening is that with regulation, due diligence requirements, governance and procurement, people are saying: ‘We need to have the right partners, not too many of them, and know how to manage those relationships.’ That is where we want to position Davies.”

A profitable year

If financial performance is any indicator, Saulter’s strategy is paying off so far. Davies’s EBITDA increased 38% to £10.5m in the year to 30 June 2017 from £7.6m the previous financial year.

Unlike many private-equity owned firms, Davies is also profitable on a statutory basis. Profit before tax was £2.4m, up from just £418,000 in the 2015/2016 financial year.

The company also grew turnover by 23% to £55.1m from £44.6m. Acquisitions certainly played their part in this. The three deals completed during the relevant financial period – Surveyorship, Core Insurance Services and Cynergie – accounted for 14 percentage points of the 23% revenue growth.

But organic growth also played a big part, accounting for nine percentage points of the increase. The company says it won more than 50 accounts in the period from both new and existing clients.

While the profitability and growth to date has been impressive, Saulter is hoping for more. Having doubled the company in size since taking it over, he is hoping to do the same again for new owner HGGC.

Saulter is insistent that Davies will not just grow by acquisition, and is hoping that organic growth will make up an even bigger proportion of future growth than it did in 2017.

He says: “As we look forward to the next two to four years, the aspiration is that we would take the business to a place where we can achieve double-digit growth organically.”

He suggests that new acquisition Ambant could be a big driver of this. He says: “Ambant has a really good track record of growing a bit quicker [than the 9% organic growth Davies achieved in 2016/2017].

“In the group context, we would like to think that the Ambant acquisition, as we integrate it into Davies and get the benefit, will help the whole thing grow a little bit faster.”

Firepower at its disposal

That is not to say Davies will eschew acquisitions going forward. The company potentially has a lot of firepower at its disposal.

In 2017 the company has access to a bank loan facility and further equity from HGGC if required alongside its own resources. It has funded its acquisitions so far from its bank facility and its own resources and has not yet had to ask its new shareholder for more money.

In 2018, those three capital facilities will remain open for use, both for acquisitions and further investment in research and development. Saulter said: “I don’t see there being any restrictions in 2018 on what we want to do because of those sources.”

But Saulter also stresses that acquisitions will not be the only use of the capital at Davies’s disposal. The areas Davies operates in are changing quickly, and constant investment in technology is needed to stay ahead.

Saulter says the company is likely to spend more of its capital on new development than M&A.

“In terms of increasing our commitment I would say it is more on the non-M&A side [of capital expenditure]. We are very much committed to increasing our spend in the area of innovation, disruption, research and development and investing in digital. Our clients are absolutely right to expect us to be doing that.

“They are in a world where they are facing disruption and having to think differently, and we want to do some of that for them. You can see us doubling down in that area again in the year ahead.”

Davies’s efforts so far have focused on its heartland of the UK and Ireland. But Saulter and the company’s new parent are keen that the company looks to expand internationally.

Such expansion is unlikely to take the form of Davies setting up new operations from scratch. Rather, the company may start offering international products to clients it already services in the UK, or may also buy its way into new territories.

Saulter says: “Right now we remain primarily focused on our domestic markets in the UK and Ireland and we see good growth there, but I’d be lying if I said we weren’t actively interested in overseas as well.”

Staying focused

A danger with all of the expansion is that Davies loses sight of its customers, and becomes one of the large, difficult to navigate companies that Davies has been an antidote to so far.

But Saulter is determined not to let this happen. One of the keys to avoid becoming big and bureaucratic, he says, is to keep management flat and lean.

“We don’t want to have unnecessary layers of management. We want to have quick decision making. We want to be a business that is open and people feel free to challenge, criticise, put ideas forward, and we feel really strongly about that.”

The company also will not expand willy-nilly. Saulter says it has a clear idea of what it does, and more importantly does not, want to be.

He says: “There is one very clear boundary: we don’t want to become our clients or compete with our clients. The other thing we don’t want to become is a provider of capital. You won’t see us investing in MGAs or brokers. That is for others. That isn’t our specialism.”

Davies has achieved a lot under Saulter’s tenure so far, and is still full of ambition. Saulter is showing no signs of slowing down yet.