Holding all the aces

He may well profess to hate the term ‘consolidator’, but Jelf chief Alex Alway has become one of the leading exponents of the acquisition frenzy in the broking market. Brimming with confidence, and scarcely a month after the insurance and healthcare broker he runs secured hundreds of millions in acquisition funding from heavyweight investor 3i QPE, Alway outlines his plans for the future of the company.

He is quick to dispel talk that Jelf itself could be bought, whether by 3i, or by another consolidator. 3i upped its stake in Jelf to 27.9% last month through the purchase of secondary shares, while Giles Insurance Brokers chief, Chris Giles, declared a desire to merge with Jelf and another major broker, Oval. His comments follow the sale of a majority stake of the business to private equity investor, Charterhouse, and the securing of a £500m war chest of his own to spend on acquisitions.

With the market awash with rumour, Alway is keen to set the record straight. Commenting on a potential takeover, he says coolly: “[a sale] is not on our agenda. 3i takes minority stakes in companies. As an investor, it will be right alongside us as we grow the business to another level, and it will provide the firepower to release funds when necessary. It has also provided liquidity, and the possibility of putting further debt into our model.”

Making a statement
A tie-up with Giles is also out of the question. In fact, Alway issued a statement to Jelf’s staff stating categorically that Jelf was not for sale, after Giles' comments in the press. But Alway believes that a deal between two or more major brokers may not be out of the question in the future.

“Of the wholly-owned brokers of some size, like Giles, Oval, SBJ and ourselves, it is inevitable that at some point in the future, with this refinancing going on, there will be another round of consolidation,” he says. “Whether it’s consolidating or being consolidated, it doesn’t matter. But you can be sure there will be another round.”

In fact, days after this observation, AXA made a bid for SBJ, indicating that further big deals were indeed set to continue.

Alway says that the pressure for further consolidation will come from the private equity firms and other backers who are supporting the wave of refinancing that is going on at the moment within the broking sector. They will want growth from the businesses they are investing in, so the pressure will be on to buy.

“Whether it is consolidating or being consolidated does not matter. But you can be sure there will be another round.

Alex Alway

“You need to refinance if you’ve got expensive plans,” Alway says. “And you have to take advantage of interest in the sector. These people coming in are not going to be there to do nothing: they are going to drive another round of consolidation.”

As far as 3i’s relationship with Jelf both in terms of availability of funds and ownership, Alway is emphatic. “It’s a well trodden path. It will be the usual debt for equity models, depending on the shape of the deal.”

Alway describes Jelf’s 20 institutional investors, including Norwich Union and Allianz, as the “Who’s Who of small to mid-cap funds,” adding that it is feasible that other investors could take a stake in the business.

He points out that a substantial portion of the £700m in funds that 3i has available to splash on AIM-listed companies, while not exclusive to Jelf, will be coming his way.

When Jelf floated on AIM three and a half years ago, it was valued at £10.8m. Now it is worth over 12 times that sum. The company’s mantra then was positioning itself as a consolidator in niche growth areas, such as health insurance, with the proceeds being used to fund further acquisitions. That strategy seems to be working. The group has made 15 acquisitions in the past two years, and grown its GWP to in excess of £320m.

Its latest results saw pre-tax profits double to £7.19m, a 61% rise in turnover to over £40m. The group has also upped its margin more than 70% to 16.3% since it floated.

Jelf’s rapid growth has inevitably brought comparisons with its consolidator competitors – and all the more so in the light of recent developments. The purchase of Manson, controlling £45m in annual premiums, for £16.2m and share options signalled a sea change in the profile of businesses the broker would look to buy, both in terms of size and location. Spreading out from its heartland in the South West, the company is now looking to build its presence in both the North West and southern England.

“It is alright to say you have all the negotiating power, but it is no use if insurers do not value the strategic partnership with you.

“You can expect to see more of the same. Look at our track record,” Alway says.

Build PI business
While he rules out the group moving into new lines of business, he says he plans to use the group’s existing relationship with other sectors relating to its employee benefits and healthcare arms – including solicitors – to build its professional indemnity (PI) business.

More interestingly, perhaps, with it being understood that rival Giles is set to ramp up its underwriting circle, Alway says Jelf is actively considering developing its own underwriting facility.

In this enduring soft market, does Alway agree that the consolidators are increasingly holding all the aces in the proverbial market deck?

“It’s alright to say you have all the negotiating power, but its no use if insurers don’t value the strategic partnership with you. It’s an often-used term, but it’s a lot more productive than simply asking for higher commissions.

“And it’s not about how many aces you are holding. It’s how you hold them.”