Going national without selling out

The ambition of Paul Meehan is to create a national footprint for the broker group he runs. And with a searing performance in the Top 50, surging from 34 last year to 27 this year, his shoes are big enough for the Smart & Cook Group to make it. "We were a regional broker and now we are right across the UK," Meehan says proudly.

Smart & Cook recently completed its 51st acquisition - Bath broker Kallender Jeffries, specialists in motor and with over 30 staff. The West Country is a fair distance from Harrogate where the group is based, but it epitomises Meehan's successful strategy and ambition.

Meehan says: "We like to start in out-of-the-way places where we can be the broker of choice, providing services to the local community."

As a result of this purchase Smart & Cook now has a regional base in the South West, which Meehan is looking to use as a platform for further acquisitions.

"We look at areas where brokers are unrepresented. We are looking at Lancashire, even though we have a small office there."

The acquisition trail has been long. The broker has made 51 acquisitions in the last 16 years - a growth strategy which has seen the brokerage figures increase to £31.5m.

In 2004 the company raised a £57m 'war chest' to fund further growth, including a major investment by venture capital firm 3i.

Meehan says: "What we have with 3i is a lot more accountability. The whole arrangement now tests purchase ideas more solidly and produces more sound thinking. In the old days we would come up with an idea and just do it."

And Meehan has set a target for the next 12 months. "We aim to do about £10m of revenue acquisition this year. Which is not too ambitious - about two or three firms. We don't want to go too quickly."

But the acquisition trail could have come to an end with the untimely death of Smart & Cook founder, chairman and majority shareholder Geoff Cook in January last year.

"There was a lot of interest in Smart & Cook when Geoff died. It came as a result of press speculation and the Willis comment."

Following Cook's death, market sources had connected interest in Cook's stake with broking giant Willis. "We weren't talking to Willis because we were not interested in selling," says Meehan. Even if Cook's family, who inherited his 60% stake in the firm, had wanted to sell his holding, they were bound by the deal agreed with stakeholder 3i.

This means none of the major shareholders can sell their stakes without first offering it to the other parties, or without the approval of the other shareholders.

At the time, Meehan said rumours of a possible sale were simply an example of "schadenfreude" within the broking market, a comment he stands by today.

And in another moment, Meehan reveals his close relationship with Cook.

"It was always good to bounce ideas off him. I miss that."

The previous November Smart & Cook Group denied rumours that it was to sell to the Towergate Partnership. Does Meehan fear the likes of Towergate?

"No, not really no," he says casually. Then adds: "Towergate competes with us on some acquisitions, but not too many."

And he rules out selling up to Towergate. "I don't see us selling to Towergate because we have built a business and we would end up losing a lot of people if we did. There would be a lot of duplication and that would not sit comfortable with us."

Selling stakes

Speculation has also centred on whether one of Smart & Cook's major backers, venture capitalist 3i, was to sell its stake in the group. And while rumours of selling stakes are on the agenda, Meehan clarifies the position. "3i is investing in our business for a few years, but it has an eye on an exit. When I am building a national business, the time to exit is when the market hardens, so we are looking at around 2008/2009.

"I think 3i will be keen to realise its investment at that point in the cycle and that comes every six years. If it isn't 2009, then 3i will lose the opportunity to maximise value," he says openly.

But the shape of the business and culture will remain unaltered, says Meehan. "Only the shareholders will exit. I would stay with it and everything about the business would be the same. It is a way for the (Cook) family and 3i to realise their asset. But I am under no pressure at the moment.

We all want to get the maximum out of the business. And timing is very important."

Although Meehan does admit that with 3i's backing set to end around 2009 there has to be a contingency plan, and he possibly sees Smart & Cook becoming part of a banking set up.

"We would be very attractive to a bank. We have a national network, a proven track record, and none of our people would be in danger of losing their jobs. I would say there could be a good future in that environment."

So if 2009 is a cut off point is Meehan speaking to a bank now? "We are not talking to anybody now. By that time [2009] we will have bigger numbers, bigger volumes in the market and bigger returns in the market."

What Meehan wants is "growth, but manageable growth". He wants to see a 50% increase in the company's brokerage this year with a 35% rise the year after, "as the baseline gets bigger".

"And the time we to get to exit we should be above £70m." Indeed, the company is on the acquisition path, targeting brokers with between £2m and £5m revenue in the North West and the South Midlands.

"We are looking at the South Midlands and the Oxfordshire area, but the Midlands itself is already heavily populated by brokers," he says. And Meehan's boast that Smart & Cook has grown into a national broker can be in doubt with operations stretching from Glasgow to Ludlow.

Scottish operations

Smart & Cook's Scottish operations in particular received a boost in November 2004, when it signed a five-year deal with HBOS's commercial arm, BOS Commercial Insurance, to service leads from BOS's corporate banking division. This focuses on businesses with a turnover exceeding £1m. And the deal is a platform for going forward.

"The deal gave us a whole new sales team, and a large number of new clients in Scotland. It gave us national coverage overnight."

It is also this relationship that has probably given him the idea of how a bank can become Smart & Cook's owner without the business being dramatically altered, while having the ability to grow further.

The story now is what the company is going to do going forward, says Meehan. More acquisitions are in the pipeline. A further expansion into Scotland is on the cards, on the back of already having a presence in Glasgow and Edinburgh. "We would like to open in further locations, particularly Aberdeen and Perth."

The company is also entering new niche areas, particularly farming, through its acquisition programme.

Although Meehan says: "We'll stick to what we know and understand. I don't see us moving into the Lloyd's market. "But he says other companies track him occasionally. "We are regularly approached because we have a cracking business, but we are not in any discussions."

Meehan is naturally cautious when it comes to the current market conditions.

"The soft market is going to cause some difficulties for all brokers at a time when there are cost pressures coming in on regulation, and they are paying more for staff."

Little guys

But worsening market conditions will not stop the consolidators from gobbling up parts of the market, predicts Meehan.

"There's always room for all the consolidators. The one problem for us is finding as many businesses as we want to buy. And the consolidators are buying all the little guys out."

And Meehan says he feels for the smaller brokers here. "For the smaller guys it is tough. They are losing clients because they don't have market, losing revenue, costs are rising because of regulation and they are all getting older. It is tough. But they have options still, such as joining a network."

He notes that his company is feeling the effects of consolidation by getting more business through recommendation. "We have always had that of course. But you get people asking 'do you know a good broker?' It is a sign that consolidation is leading to a lack of quality advice sometimes being available."

And it is tough for those coming into the market. "If you are setting up a business now you have to begin with getting regulated, and there are very few new firms opening up."

But the bigger firms are also feeling the consolidation pressure by selling up as well. "That is because the rules apply for the bigger guys as much as the little guys," says Meehan.

But in the world of Paul Meehan every challenge offers an opportunity.

"People tend to think about the market and linger on the downside. But there are always positives," he says. "Much more business goes to review at the moment. You can make a real good deal for the client because the market has a real appetite for business. So you can always do a good deal if you are willing to find them." And there is no doubt that when it comes to finding a good deal, Meehan has a strong history of success.