Broker Network chief executive Grant Ellis has hit out at the unrealistically high prices being paid for brokers by consolidators.

Ellis said some acquirers were paying over the odds for brokers and demonstrated a lack of rigour when it came to calculating the potential returns.

His comments were made as the group reported that 2006 pre-tax profits had doubled compared to the previous year.

Ellis said that the high prices being paid for some strategic acquisitions were giving many sellers the false expectation that their businesses could achieve similar values

“There are too many buyers and not enough high quality sellers.

“The broker market is fiercely competitive, particularly since insurers entered the fray last year. We now have to contend with competitors who are not as disciplined as we are when it comes to the financial returns they expect from their acquisitions.”

Ellis said large brokers, such as Lark, which was recently bought by Groupama for what was believed to be in the region of £47m, would attract the highest multipliers because of sheer size. There has been a skewed perception in the market that smaller brokers were going to get the same kind of deals.

Broker Network reported pre-tax profit of £6.5m for 2006 up 100% on the previous year. Turnover rose to £23.2m up 86% on 2005.

The positive results were attributed in part to the acquisition of TL Risk Solutions and the increased number and size of network members.

Broker Network had 23 new members in 2006/2007 bringing its total membership to 166.

Ellis said the future was ripe for growth and the network had ambitious plans of expanding its membership to 500 over the next eight years and to continue seeking acquisitions.

“The average size of brokers joining are larger and there’s a changing notion that joining a network isn’t just for the distressed but is actually a good business move.”

Ellis said the growth in membership would likely be by larger independent brokers struggling to compete in the growing world of consolidation.

“It has now become more of a national pond as opposed to a regional pond and brokers are seeing business reduce.

“They are not seeing their margins increase and if they aren’t in the top 20, they are not getting a seat at the table. They are realising the only way to compete with consolidation is to join a network.”

Ellis said the network had held back on acquisitions in the last financial year, citing an absence of attractive opportunities and an unwillingness to overpay.

But he said the network had continued building its acquisition pipeline and was in discussions with a number of brokers, who were beginning to consider more realistic multipliers.

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