The inside story of Gallagher’s Bollington acquisition

By Saxon East

When Bollington decided to sell, there was only ever one buyer in it. 

”Rumours are that Gallagher paid cash up front and a high price. Nobody could get near them,’ says one source who watched the sale closely.

”There were’t even really any other serious bidders. Gallagher pre-empted the process.”

Gallagher synergy play

Welcome to the world of Gallagher. When the Chicago-based broking giant sets its sights on a UK acquisition, it is very difficult to stop. 

The US broking giant has more than one billion dollars in free cashflow. It can fund acquisition targets without even using debt.

”Private equity have to be concerned with their cost of capital, factoring in the debt. It’s a little bit more complex”, says one mergers and acquisition expert. 

But it’s not just the Gallagher cash pile, there is another reason why Gallagher can pay higher prices and outbid rivals.

”It’s not about what they pay as an EBITDA multiple. It’s about what they can get with the synergies,” says an experienced broking acquirer. 

”Let’s say Gallagher pays a x15 multiple for a deal. But then you take out the offices you don’t need and put them into existing hubs with the staff, you centralise all functions such as HR, finance and so on. You take out some of the most senior director’s pay. Once you’ve done all that, you are probably left with a multiple more like x10.”

Another experienced seasoned buyer of brokers, said: ”When we first started out you’d pay a multiple of income. Then it was a multiple of earnings. Now we talk about ‘ebitda in our hands’. That’s what the multiple will actually be once the whole business is integrated.”

”There is no organisation out there really like Gallagher that have their size. Sure private equity can do some synergies, but nothing like Gallagher.

“I do give Gallagher credit though. They are kind of like the Roman empire, they assimilate different cultures well and try and do things the right way.

”They’re not like other big trade buyers who will go out there, make a big acquisition, and shove all their SME business in a call centre, where the only experience staff have is working in McDonald’s.”

The deal has also once again freshened up the debate about what the benefits are of a broker selling to trade buyer compared to private equity. 

Private equity benefits

Following the deal, UK retail chief executive Michael Rea, when asked about Gallagher strengths as a home for brokers, said: ”We are offering a final home for their clients and colleagues. Whereas in a private equity, you are part of a journey which will ultimately end in the business probably being sold to somebody else.”

Others see it differently. 

Warren Downey, chief executive of Specialist Risk Group, was backed by private equity owner HGCC in a deal in December last year. Management have also put equity into the deal.

SRG has in its stable well-known acquisition names such as Miles Smith, the Underwriting Exchange and London Ireland Market. 

Downey outlines the benefits of private equity. 

”The thing about trade purchases is that there are two massive comprises built in. The first is that you are subsuming your business and its culture within a larger, more often, complex matrix business. You will only ever be a very, very, small moving part. 

”The reason trade is sometimes seen as being as able to give good value up front, or perhaps enhanced overall deal value, is the bit that isn’t in the offer letter which is synergies. It is the synergies which make it work and all hang together. The synergy number might not be in the offer letter, but it is front, right and centre in the internal memorandum on the justification for doing the deal.”

Downey says that having a private equity partner to help growth and investment, is an appealing journey. 

”We are fiercely independent. We have a brand we are proud of and trying to build. Trying to build a business of scale and relevance in the market. So being absorbed into a large international company is not on the agenda. To do so, would be to jettison that strategy. At this stage of the journey, that is not on our agenda.”

Gallagher eyes deals

Back to Gallagher, and after snapping up Bollington, the US broker is still keen to make UK acquisitions. 

Asked about more UK acquisitions following the deal, Rea said: ”There is definitely the possibility of more. We do have a pipeline of deals we are looking at. 

“We are keen to grow organically, but we are also keen to grow through acquisitions where it makes sense. And where it makes sense, as I’ve said many times before, is where we comes across a management team we like and we can work with, with a shared set of values. 

’If the business can bring something a a little bit special - whether it is a specialism or a particular segment of the market or the economy - we will be active.

”There are quite a few deals out there. And there are quite a few people looking to grow through acquisition. It is quite a competitive landscape in the UK broking spaces.”