M&A on the brink

Get your cheque books out! Big-boy brokers and insurers looking to buy up independent brokers could be running out of time, according to experts who predict that the current acquisition frenzy could have as little as 12 months left to run.

Mergers and acquisitions (M&As) have been dominating the headlines this year, but Stuart Reid, chief executive of Venture Preference, a subsidiary of AXA and parent company of Smart&Cook, Stuart Alexander and Layton Blackham, predicts change is in the air.

He says: “With the stock exchange falling through the floor, market conditions and heightened competition, there is a philosophy that if you don’t sell in the next 12 to 18 months, you’ll probably have to wait another four, five or six years before the market improves.”

Mark Winlow, director of consultancy LECG, agrees. “[Over the next 12 months] insurers will realise they have to get rid of brokers and will start selling them off cheap. Insurance carriers are buying brokers to protect their route to

market, it’s a defence mechanism. But insurers are not good brokers.”

Winlow predicts that the recent acquisitions will wither on the vine, and believes there will be a significant return of the independent broker in about three years.

It is easy to understand why the spate of acquisitions began. With soft market conditions, new broker regulation standards imposed by the FSA and Norwich Union’s move to buy up smaller firms to enhance its direct lines business, it was only a matter of time before acquisition became the name of the game.

One example is AXA, which has focused on SME commercial and won a share of distribution through an impressive trio of acquisitions in Smart & Cook, Stuart Alexander and Layton Blackham.

In terms of total growth, broker bull Towergate tops the 2007 list with nine acquisitions contributing additional premium of £118m, and Oval is gaining ground following its purchase of Williamson Moore.

Groupama, rumoured to be buying Lark, has typically focused on motor with its purchase of Carole Nash and Bollington.

“With the stock exchange falling through the floor, market conditions and heightened competition, there is a philosophy that if you don’t sell in the next 12 to 18 months, you’ll probably have to wait another four, five or six years before the market improves

Stuart Reid, Venture Preferences

IAG also joined the club with the purchase of Hastings, Advantage and Equity.

Smaller companies have been keen to grab their slice of the pie with Cullum Capital Venture (CCV) purchasing 14 companies and CBG acquiring five, while confirming plans of four more in the pipeline.

Aon and Swinton have also been active M&A participants.

Chris Dobson, distribution and development director at Fortis, says it’s difficult to pinpoint the exact motives of some insurers who have acquired brokers without obvious strategic or niche value.

When it comes to acquisitions, Fortis appears to have taken a more calculated and arguably more sustainable approach, particularly in the purchase of broker OutRight.

Dobson says: “We don’t have a big sales and service centre. We wanted to move into the affinity market and recognised we needed those kinds of skills.

“That is exactly what OutRight does, and is slightly different from the rationale of AXA and Groupama. Clearly they must have seen opportunity there by buying these brokers but leaving them their independence.”

Despite what doubters say, acquisition continues apace at CCV. The company is scheduled to complete another deal this week and, according to chief executive Tim Johnson, has three more in the pipeline.

He says: “CCV will keep acquiring brokers because it was always its core strategy. There may be some people who dip their toe in the water and decide they don’t like the temperature and pull back.”

This would be welcome news for those who have avoided the consolidation craze, and expressed concerns about the autonomy and independence of brokers. But for those on the acquisition trail, the race is on. IT