One of the most significant developments in the transformation of the broker market over the last few years has been the rise of firms such as Towergate and Gallagher through acquisitions.
However, the consolidators themselves have undergone a number of changes recently. In particular, Towergate has faced a whole host of issues that led to its unsecured creditors, including Highbridge Principal Strategies, KKR Credit Advisors and Sankaty Advisors, taking control of the business.
The deal agreed will enable Towergate to benefit from a £125m cash injection coupled with around two-thirds of its debt being wiped out. As a result of this investment, there will be a greater amount of cash available in the market, leading to increased broker purchasing confidence.
Lack of financing has been quoted as one of the reasons why the number of registered broking businesses has halved in the last 10 years, along with increased regulation and ageing business owners. Small regional brokers have been particularly badly hit, as the absence of funding for management buy-outs or succession plans has seen them left with only the option of selling to consolidators such as Towergate.
With the appetite of these consolidators having changed the face of exit strategies of late, it will be interesting to see what impact the changes at Towergate (and Gallagher's management exits) have on the general market. I believe that the greater provision of acquisition finance could lead to increased valuations for some smaller brokers – not all, but certainly the good ones. Another likely effect is that brokers who focus on niches, and thus bring something new to the acquirer, will become particularly sought-after targets.
Conversely, individuals who have no desire to work for a large consolidator post-acquisition may go into business by themselves, turning the tide of the recent start-up drought.
Given the consolidator purchasing enthusiasm, it is perhaps fitting that David Ross, the former International CEO at Gallagher, has been appointed the new CEO of Towergate. In his former role, he was very acquisitive, with Heath Lambert, Giles and Oval being just a few of the companies that were integrated into Gallagher.
While the pot of money available following the unsecured creditors’ investment into Towergate may not match the funds that were available at Gallagher, it is likely that he will look to make further purchases, once he has dealt with the obvious operational and management issues at Towergate.
We may, however, have quite a wait to find out. Although Ross has resigned from his post at Gallagher, the consolidator has insisted on the fulfilment of his contractual obligations, including a notice period of almost 12 months.
A year is a long time in insurance, so where does this leave Towergate and the broker market in the meantime? As Towergate awaits its new CEO, there is the potential for competitor firms in the same space to make their own acquisitions, pushing further funds in to the arena.
This is therefore an ideal time for brokers to revisit their future plans to ensure they match the reality of the modern marketplace.
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