The race to flotation

Flotation, flotation, flotation. That’s the name of the game for some of the biggest players in insurance over the next few years.

For the consolidators, most of them backed by private equity, an exit strategy is a must. That means either a trade sale, or the much preferred route of flotation.

The main players are Towergate, Giles and Oval. All have the Olympics year of 2012 as a flotation date. At a different level, there is Hyperion – an insurance hybrid – and RBS Insurance aiming to list.

Different strategies

First, let’s look at Towergate, Giles and Oval. In order to float, you need size and scale, and that’s something that is proving to be problematic. As one industry insider admits, only Towergate currently has the clout to go it alone. “You need a market cap of £250m-plus,” the leading executive says. “None of the other consolidators could realistically float alone – they need to get together in one form or another.”

And that, indeed, has been on the cards for some time. Whether Giles buys Oval or Jelf, or whether two of the three merge, a transformational deal is a necessary prelude to the consolidators hitting the stock market.

But attitudes within the companies vary. Giles boss Chris Giles is a hawk: he has made no secret of his wish to seal a market-changing deal. Others are hanging back, though, perhaps because they are reluctant to let go of their control or their brands, or perhaps because of differing expectations regarding price.

Oval has brought in corporate adviser Rothschild to examine its float possibilities. Chief executive Philip Hodson has admitted the flotation date may be pushed back to 2015, giving the consolidator more time to accumulate premium income and perhaps enjoy the fruits of a resurgent economy.

Nonetheless, one sideshow among the consolidators will be the race to list first. Winslow says: “People like Towergate, Giles and co will be looking to get their money out by 2012, so I can see them trying to get ahead of everybody else.”

Getting ready

Any company planning to list has to get its corporate house in order first. Expect shake-ups at the top, with new committees and fresh faces on board.

One company already well down that path is Hyperion, parent of broker Howden and insurers CFC and DUAL. Hyperion Group founder David Howden has already drafted in John van Kuffeler, who has 40 years’ experience in both insurance and investment banking, in the role of non-executive chairman to oversee the listing process.

Howden says: “When you go to the stock market, people want to understand that the business is well run and has the right management and procedures in place.”

The only company that won’t need that kind of refocus for a listing is RBS Insurance, which is likely to be up for grabs by 2012, because the European competition authorities have ordered the bank to sell up. The bankers will take care of the preparations, something very much hinted by insurance chief executive Paul Geddes. “The favoured option is an IPO,” he said last month, “but it may also be achieved by a trade sale. There’s no hurry to do it.”

The next five years are going to be interesting times in the insurance industry. Looks like the Olympics won’t be the only thing to look forward to.

saxon.east@insurancetimes.co.uk

Key points

• Towergate, Giles and Oval have all touted 2012 as the year they plan to float, although Oval has admitted it may push this back to 2015
• Only Towergate is seen as currently having the clout to go it alone on the stock market. Oval and Jelf will need to boost their numbers in one form or another
• Meanwhile, Hyperion and RBSI are also making preparations for their own exits