Higher capital gains tax will not stem the spate of broker buys
The run up to the new capital gains tax regime (CGT) has seen a string of flurry completing as sellers rushed to avoid paying a higher tax rate.
These deals ranged from the large, such as Towergate’s sale of a £100m stake to US hedge fund Och-Ziff, to the more modest, for example Cobra’s acquisition of Hampshire-based broker Giles Alton for £3.9m.
There has been much discussion of whether consolidation in the broker market will begin to slow down now that the higher tax regime, which will see the tax paid on their capital gain rise by 80%, has come into effect.
Given the ambitions of the major consolidators a marked slow down would seem unlikely.
One only has to look at the size of the acquisition war chests amassed by the likes of Jelf Group and Giles Insurance Brokers to see that the buying bonanza is set to continued for some time.
Chris Giles, the chief executive of Giles Insurance, has his sights on growing his business to over £1bn in annual premiums from its current size of over £200m. An ambitious target without a doubt but Giles has his hands on £500m in acquisition funds from new private equity backer Charterhouse.
Jelf and Oval are also hunting for purchases. As Insurance Times reports this week, Oval has nine acquisitions set to complete over the coming months and is planning its funding requirements for future deals.
Jelf, which sold a stake to private equity heavyweight 3i, has access to substantial funds for acquisitions.
Meanwhile, uber-consolidator Towergate still has deep pockets when it comes to funding purchases – over £100m, according to recent reports – despite the postponement of its refinancing.
So, there appears to be no lack of cash for the deal-hungry buyers and their appetites appear pretty healthy too. Only Venture Preference, AXA’s broking arm, seems to be slowing down its buying frenzy as it begins to integrate its purchases.
Even with the new CGT regime, broker consolidation will continue apace.
