It may seem simple, but shouldn't one plus one always equal two. Somehow when it comes to the merger of two companies (and the insurance sector is by no means alone), this is not always the case.
As rumours abound, in a season of acquisitory fever, of an impending Towergate bid for chronic buy-out target Heath Lambert, the question has to be, does consolidation always add up to the desired figure?
Debate among senior insurance figures suggests that the decision to buy and merge two brokers, two insurers, or a broker and an insur-er, whatever the combination, boils down to two things, either strategy or tactics.
The tactical factor in a softening market seems the most obvious driver – the basic need for volume and size, the bigger the better.
Paul Ragan, chief executive of Welsh broker Protect-agroup, admitted as much when he announced recently that his medium-sized company was aiming to float at the £40m turnover mark.
At £8m the quickest way to get there is to buy, and buy in bulk.
In a competitive market, organic growth may appear the more sensible option, one which many have gone on the offensive to do, poaching teams left, right and centre. But it's not an option for the impatient.
A potential merger be-tween Heath Lambert and Towergate is regarded as a logical fit, most target companies surely have to be justified as a strategic fit, and you won't find many agreeing to the contrary.
As Towergate says, the broker market is saturated and, as a result, it is set to prey on the IFA sector instead. But, is this motivation just a knee-jerk reaction to AXA?
Whatever the motivation of acquisitive companies, the fact is: they look bigger, have a larger market share, and possibly more clout, but ultimately what have they bought?
Doubts are quickly emerging about the actual value Catlin has gained from buying Wellington.
The deal is said to have cost in the region of £700m, but with more than 100 former Wellington staff leaving, including chief executive of Wellington US, Stan Kott and the once chief underwriting officer in waiting, Matthew Yeldham, are the seams beginning to unravel?
At the time of the takeover, analysts applauded the acquisition, saying: "The complementarity of the businesses does mean that the risk of personnel fall-out is less than would be typical for a Lloyd's merger and most of the senior people seem happy with their roles."
Catlin would vehemently agree that this is still the case, but others in the market are less convinced and despite emerging as the biggest syndicate in Lloyd's, in comparison to some of the composite insurers it's still a small fish and it's getting smaller.
Consolidation is a popular game and shows no real sign of abating, but does it always lead to one plus one equalling two? The suggestion is possibly not. IT
