From rapidly moving to a remote working framework, to meeting the increased need for trusted advice from their clients, to facing the financial turbulence of an uncertain economic landscape, insurance brokers have been vastly impacted by the COVID-19 pandemic and lockdown. So, with so many business challenges resulting from the crisis, what impact is this likely to have on merger and acquisition (M&A) activity in the broking sector?
The head of Marsh Networks, David Hopwood (pictured), noted that, following the pause in activity after the immediate COVID outbreak, more brokers began thinking about either selling their business or acquiring a new business. From both sides of the equation, people now seem to be looking at acquisitions in a very different way.
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“Prior to COVID there was a lot more people who simply wanted to sell their business, then get out of the industry and retire or do something else, and the acquirers were looking to take that business and roll it into their existing [proposition] and move on,” he said. “But we’re seeing a lot more strategic thinking around the acquisition piece now.
“Some of the brokers are looking at their mix of business and maybe trying to reposition that mix a little. So, we’re seeing some sales of personal lines books, for example, which might be seen by some as non-core and that’s giving them some cash to reinvest into areas where they see they’ve got more expertise or knowledge or experience.”
The increase in management buyout (MBO) activity within the network post-COVID has also been interesting, Hopwood said, and is difficult to explain away as being only due to the pandemic. This just seems to be a point in time where brokers looking to sell have examined the available acquirers and are perhaps not comfortable with the big consolidators and the deals that are being offered by them. So an MBO opportunity is a nice option to allow somebody from within the business to take it over and this can give the seller more control over the future direction of the business than they may otherwise have had if they had sold to one of these consolidators.
With 280 members in the network and a transactional relationship with over 450 other brokers, Marsh Networks has a keen overview of the sector, he noted, and an insight into the aspects of M&A activity which brokers often do not spend enough time thinking about. The network has developed several standard procedures and processes which it shares with its brokers to help them negotiate these complex deals.
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Outlining some of the support services the network has in place for those members looking to sell, Hopwood noted that, for many, one of the hardest things is finding a buyer who is a good fit for their business. They are looking for a buyer with similar ideas and culture, who will look after their clients (many of whom might be personal friends), as well as protecting their staff.
“You want to know that the person that’s buying the business is going to maintain those relationships and make sure they are looked after,” he said. “So, because of our knowledge, we are able to join the dots between the buyers and the sellers and make sure there is that cultural fit, and that’s working really well for us. And the benefit of this is that it’s a lot less traumatic, particularly for the seller.”
Marsh Networks supports its broker members by putting them in touch with the professionals at its disposal who can ensure the business looks the best it can before any sale. This expertise runs the gamut from ensuring everything is above-aboard in terms of compliance and regulatory issues, to making sure that all staff have up-to-date employment contracts, to determining the optimal structure of the business through consultations with tax experts. This latter is a really critical part of the transaction which many brokers do not fully understand until they get into the detail of the acquisition conversation which, in many cases, is too late as certain tax regulations can require a business to be trading in a certain way for over two years.
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“Brokers need to be thinking about these things early,” Hopwood noted. “So that’s what we’ve been trying to get across to our members – even if you’re looking at selling your business further down the line, start talking to us now and we’ll help you in making it look as attractive as possible when it comes to that negotiation.”
On the flipside of the coin, Hopwood outlined that a lot of the businesses currently looking to acquire are looking at the acquisition space slightly differently now. The majority still want to buy a whole business and integrate with their own, but there are also some looking more strategically at potential purchases. Hopwood said that the network has more brokers looking to acquire than it does looking to sell and noted that this is likely due to the opportunity Marsh Networks has been able to create with regards to funding.
“A lot of [brokers] haven’t gone down the path before because they haven’t had the available funding,” he said. “It’s been very difficult to get a high street bank to loan the money for a broker to be able to go out and acquire as they don’t recognise the assets that a broker has in the same way that they do other types of commercial businesses. But now, having got that funding facility in place, a lot more brokers see this as a viable option and are taking advantage of it.”
From funding facilities to due diligence and compliance aids, to checking the HR aspects of any acquisition deals, to data transfer assistance, there are a variety of ways in which the acquiring broker can be supported.
“We have some standard procedures that we can share with them that they can follow,” he said, “even down to template letters that they can use for their own customer bases, and it’s working very well at the moment. And, with the number of acquisitions that have occurred already over the last few years, I do feel we’re going to see an acceleration now in acquisitions, even more so. So, I think if, as a broker, you’re looking to take advantage of that, now’s a good time to do it. It’s definitely interesting times.”