Down, but not out

Autonet’s recent experience is a prime example of what is happening in the UK general insurance broking industry.

According to Autonet chairman Glynn Keeling, the firm has had a flood of offers to buy the business, all of which he has rejected. And Keeling suggests his firm is not the only one this is happening to.

Would-be buyers of independent brokers have got themselves excited about the prospects of rich pickings this year. In general, the last couple of years have taken their toll on smaller independent brokers. Dwindling demand for insurance, and thus greater broker competition for a shrinking pot of business, has added to the persistent pressure of flatlining insurance rates in many lines. With the economy still struggling, there are few signs of relief.

Keen buyers are therefore hoping that the owners of these businesses will throw in the towel in return for a nice cheque and the prospect of either starting something new or taking a long holiday.

There are signs that the buyers have called the market correctly. Towergate, which has already made seven acquisitions this year, announced yesterday that it was buying a further three regional firms. And it is unlikely to stop there.

The buyers’ desire to make acquisitions are driven by their own pressures. Consolidators, for example, have been hit by the same economic challenges as their smaller peers. They need to keep growing their revenue streams to pay their often large debt interest bills and still have enough left over to invest in their businesses and fund yet more growth. Acquisition is really the only option for growth in the current environment.

Little surprise, then, that the independents’ phones are ringing off the hook. This also explains the high level of interest in Groupama’s UK broking entities.

Autonet’s experience also shows that independent brokers wish to remain so. The stronger ones who are still doing well, feel they can weather the storm and who still have plenty of ideas are unlikely to be tempted by all but the most generous of offers.

Independents may not be having it easy right now, but that does not mean they have been beaten into submission. Would-be buyers should expect knock-backs.