A flurry of deals before the start of the new capital gains tax regime.
The rise in capital gains tax sparked a flurry of acquisitions at the end of last week, as companies rushed to sell up before the Saturday deadline to avoid an 80% jump in rates.
Jelf spent over £28m last week, buying Clarke Roxburgh, which operates from 10 locations across the West Midlands, for an initial consideration of £18.3m on Thursday and Kent and Sussex-based Argyll on Wednesday for an initial consideration of £9.9m.
On Friday when Cobra bought three brokers: Hampshire-based Giles Alton for £3.9m, Manchester-based JK Lee for £1.9m and Essex-based GDK Insurance Services. It also bought County Insurance Services Schemes, an underwriting agency tied to GDK, with a combined cost of £4m.
Meanwhile, Manchester-based broker CBG announced the acquisition of Howgud and its subsidiaries for £2.3m.
Towergate chairman Peter Cullum also presided over some activity. Towergate announced the sale of a £100m stake to US hedge fund Och-Ziff on Friday, while Cullum Capital Ventures (CCV) acquired Bristol-based broker HLI – worth £7m in gross premiums.
The Och-Ziff deal followed collapsed talks between Towergate and private equity firm Candover, which would have seen Candover take a 25%, £800m stake. Hiscox got in on the act too, taking a 35% stake in Media Insurance Brokers International.
Paul Delbridge, partner at Pricewaterhouse Coopers, said private equity houses would be hardest hit by the changes, and as a result, may become less prominent buyers in the insurance sector. “Because of the credit crunch, private equity houses have been unable to raise as much finance,” he said.
But the difficulties faced by private equity houses in financing acquisitions may bring advantages for insurers and brokers seeking to buy.
“I don’t think the changes will affect acquisitions between companies within the sector,” Delbridge continued. “We will see more mergers and acquisitions. Prices are now falling back down after being pushed up by private equity.”
But Charles Coyne, analyst at KBC Peel Hunt, said: “Doing an acquisition quickly just to save tax is risky.”
On Saturday, capital gains tax leapt 80% from 10% to 18% for transactions over £1m, although the 10% rate for transactions under £1m was retained to assist smaller businesses. The changes had been announced by Alistair Darling during his Budget speech on 12 March.
Stephen Haddrill, director general of the ABI, said at the time of the Budget: “The government’s lack of consultation over the effects of CGT changes has caused confusion and uncertainty for savers and the insurance industry alike.”
