Cobra’s Stock Exchange announcement triggers wave of speculation.
Chris Giles, chief executive of consolidator Giles, has ruled out acquiring Cobra despite being widely tipped as its suitor after the network received an approach last week.
Senior market sources pointed to Giles as the most likely candidate for the acquisition of the AIM-listed network, which confirmed it had received an approach from an unnamed suitor in a statement to the London Stock Exchange on Friday.
Other firms linked with Cobra include Towergate-owned Broker Network and Jelf. Broker Network boss Grant Ellis was unavailable to comment. Alex Alway, chief executive of Jelf refused to comment.
Cobra’s statement said: “Following the recent increase in the share price, the board of Cobra Holdings announces that it has received an approach and is in discussions which may lead for an offer for the whole of the issued and to be issued share capital of the Company. It is emphasised that it is possible that no offer will be made.”
Giles told Insurance Times that he had not approached the £350m GWP network. “We are not in the frame for Cobra, I can assure you of that,” he said. “But it does not surprise me to hear that we are linked with it. There are only a few viable buyers of that business in the market.”
Instead, Giles said the broker could develop its own network. “There are not that many networks about,” he said. “It might be possible to start something up ourselves. When we have got the time to set up our own network, we might look to set one up from scratch.”
“There are not that many networks about. It might be possible to start something up ourselves.
Chris Giles
He added that the broker is still looking for other acquisitions: “We are in the market, we are looking at assets and we have got the cash to buy,” he said. On Tuesday, Giles announced the acquisition of Edinburgh-based Carrick Neill & Co, which has 34 employees and takes the broker’s Scottish offices to 12.
The Cobra Network consists of around 130 members. The group also includes an underwriting agency, a retail broker and a Lloyd’s wholesale broker.
Last year, it acquired Manchester broker UK & Ireland Insurance Services and made four smaller acquisitions in April in an attempt to build a regional ‘hub and spoke’ strategy.
Senior market sources said Cobra had been looking to sell for some time and would only agree a deal that was considerably higher than its market capitilisation, currently more than £43m.
“The Broker Network was sold for £95m and that sets the pace for other networks,” a source said.
Online Analysis: Who is striking for Cobra?
A takeover approach for Cobra should come as no surprise to the market.
The business, which revolves around a successful network controlling more than 350m pounds in premiums, has grown in stature to become one of the UKs largest insurance groups.
It consists of a number of companies, including a retail broker and Lloyds wholesale broker, an underwriting agency and a financial services division. It would give any potential buyer a significant distribution channel that could be bolted on to an existing operation or developed as a new function. In recent years, Cobra has acquired a number of brokers after adopting a regional hub and spoke strategy.
Yet potential suitors for the business are few and far between. And, with a market capitalisation of almost 40m pounds, Cobra could demand a hefty price. Towergate chief executive Andy Homer said last month that the company was interested in acquiring another network, although he emphasised that the company would focus on integrating its existing businesses. Broker Network has also been locked in takeover talks with Westinsure for several months, with Broker Network chief executive Grant Ellis continually stating that only two or three networks would exist in the future.
Intriguingly, following Towergates bid for the Broker Network last year, Cobra commissioned a report by research firm Fairfax to highlight that its valuation had been underestimated in the context of the offer. The report argued that Cobra should be valued higher than the Broker Network because it had a larger underwriting agency and larger Lloyds facility. We believe that the acquisition of Broker Network clearly underlines the value within Cobra Holdings. The shares are at least 50% undervalued on a take-out basis, it said.
Giles, backed with private equity cash, would have been a frontrunner as it continues to look for ways to increase distribution and expertise through larger acquisitions, while developing its underwriting operation.
Insurers may also consider Cobra as a business that could potentially add value. AXAs broking subsidiary, Venture Preference, has been linked to networks in the past, although it is understood that the company is not likely to pursue a bid given the task of integrating its existing 1bn pounds GWP broker business.
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