Warren Downey has big plans for SRG this year. Insurance Times catches up with the broker boss to uncover the firm’s objectives since receiving a funding injection from private equity investor HGGC
Despite receiving an arsenal of investment from new private equity backer HGGC, London-based broker Specialist Risk Group (SRG) believes the ultimate barometer of business success is organic growth – the firm’s group chief executive Warren Downey said this “far more important topic” is “in the DNA” at SRG.
Speaking exclusively to Insurance Times, Downey explained that whilst M&A remains a useful vehicle for boosting business, “it’s not the sole route to growth. Organic [growth] is a far higher quality [and] a far more important topic. It’s in the DNA of the business”.
This concentrated focus on achieving organic growth clearly influences SRG’s acquisition strategy.
With a solid nine years of continuous double digit organic growth under its belt, Downey said the broker can therefore be far more strategic when it comes to M&A activity because it doesn’t need to use its investor firepower to grow by buying big businesses or maintaining a relentless purchasing schedule.
“When you’ve finished buying stuff, it comes down to whether you’re a good business under all the acquisitions. The ultimate test of that is organic growth,” he said.
“We’re really fortunate - if you look at the constituent parts [of SRG], we’ve had double digit organic growth for the last nine years.
“M&A for us has got to be strategic, it’s got to be enhancing, it’s got to be deep and meaningful, it’s got to be integrated – but it’s not the sole route to growth.
”Organic [growth is] a far higher quality, a far more important topic. It’s in the DNA of the business.
“The people in the business are used to having targets and hitting them and being celebrated and rewarded for hitting them – it’s in the DNA.
”Then you add to it the right strategic moves, so you’re never forced to think ‘oh my goodness, I haven’t done a transaction this month, what am I going to do?’
“[Instead,] you’re thinking ‘is this part of the strategic build out?’ And that will take you into specialisms, the parallel specialisms, countries and risk areas that lend themselves best to that model. Not [just] fulfil an appetite to do a certain amount of EBITDA in a year.
“That could mean that you do one very large transaction, or you do a series of small ones because they address your themes.
”That’s why I say we follow specialisms where it takes us, not be driven by a set of metrics for piling on the premium.”
However, Downey does acknowledge that organic growth “supplemented by the right kind of strategic growth is the place to be”.
But, fully integrating acquired businesses into the SRG fold will impact the number of deals that can be chalked off in one year. Downey said that full integration is always discussed right from the get-go and is typically achieved within 100 days of the transaction completing.
“Full integration limits the number of things you’ll do in a year because you’re doing them properly,” he explained. “You’re not piling them high, you’re not trying to get through one a month. You’re trying to be strategic, you’re trying to identify either specialisms or themes.
“We want to aim at them deliberately, we want to integrate them, which means that you do less than if you were just not integrating them.”
‘Culture vultures’
Organic growth is not just important to Downey – he believes SRG’s organic growth figures helped attract US private equity firm HGGC, which bought SRG back in December last year.
“Organic [growth] was a big attraction. It’s not usual to have double digit organic growth every year for a number of years in a row. It’s not common and I’m sure that was a big attraction for HGGC,” he said.
“That’s why organic growth is so important to us – it’s the ultimate demonstration that you know what you’re doing.”
For Downey, HGGC “are kindred spirits” for SRG because they are also “culture vultures”.
Downey emphasised that the broker is a people and culture driven business that takes internal staff development and leadership training seriously – seeing this attitude reflected in the ethos at HGGC contributed to the businesses inking the acquisition deal.
He continued: “[HGGC believes] if you build it right and you build the right leadership team, you have the right dynamics in the business, then the business will work. It’s not magic. Their glass is half full and so is mine.
“With a new investor, you get this moment of renewal – you renew your plans, you revisit your plans, you’ve got a new audience.
“We think this is opportunity time. This is an opportunity to make a difference time.”
Forward planning
Fuelled by HGGC’s investment, 2021 is already looking to be a promising year for SRG.
Downey promises that within the next quarter, the industry “should expect to see us strengthening the core capability of the management team and acquiring specialist businesses that reconfirm this specialist journey that we’re on”.
He described this as the broker’s “natural next steps”.
Longer-term, SRG will also “expand internationally for sure”, Downey added.
With these priorities in mind, Downey told Insurance Times that SRG has two imminent MGA acquisitions planned – for him, the MGA model is tightly interwoven with showcasing sector specialisms, an approach that is also the lifeblood of what SRG strives to accomplish.
“Having the pen in a specialism is one of the demonstrators that you’re deeply specialist,” Downey said. “It’s the ultimate demonstration of specialism if a capacity provider will trust you to do more of the work in that segment.”
However, Downey is skeptical of the brokers that buy or establish MGAs purely to “run your own book”.
He explained: “MGAs for me are when a trusted capacity provider believes we have the depth of knowledge in a segment and access to [a] market that without us they would not have.
“I shy away from the whole idea that you establish an MGA to run your own book – I’m not comfortable with that, in the same way that I’m not comfortable with the idea of buying brokers to get hold of their premium flow.
“We’re integrating specialists. We’re not consolidating premium.
“None of our plans around MGAs are about our own business; they’re about third party business, they’re about client business and so we’re interested in them because they’re a demonstration of specialism.”
What are SRG’s aims?
Warren Downey, group chief executive of SRG, has a clear roadmap when it comes to SRG’s objectives.
“We want to get to £1bn of premium in the next three or four years, certainly in the next five,” he said.
“We will expect to see ourselves having the right kind of specialist operations overseas and we want to sustain our organic growth rates, in spite of the fact that we have the firepower and the support to do the right kinds of specialist acquisitions.”
The business currently handles around £350m in premiums.
Who are SRG’s competitors?
SRG does not have a direct, like-for-like competitor within the current broker market, according to Downey.
He explained: “In every sub-segment of our business, we’re competing with someone, of course. But what we’re not doing is we’re not competing with someone across the board.
“We’re not seeing UK and Ireland foundation business, which is wholesale, retail and MGA, committed to specialisms to the extent that we just won’t do generalist stuff and doing it through very strong organic growth as a priority, with the right kind of strategic bolt-on acquisitions. It’s us.”
What is SRG’s checklist when looking at acquisitions?
For Downey, any acquisition “must be specialist”, “we want it to be growing or that we can help them grow” and the firm must have “a day one intention to be fully integrated” with SRG.
“We don’t want to be in a position where you look back in a couple of years’ time and you’ve got 14 brands, nine IT systems, four compliance manuals,” he expanded.
“We’re building something of scale and relevance. We are trying to build a fully integrated model where we get the best of all worlds for all bits of the group. And so, [integration is] not a nice-to-have or something we’ll have a think about later, it’s right at the front.”
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