We caught up with M&A specialist, Colin McKenna, on the state of the UK and international M&A market, current opportunities and what businesses should be prepared for this year. Colin also shares his expert advice on how businesses can maximise their sale options and attract top buyers.
On the value IDEX can add to any business exploring a merge or acquisition, Colin says…
“We have deep routed relationships with multi-nationals, to strong regionals and local brokers who are at the heart of their communities. We care about the regional broker market and fantastic people that are apart of this sector. For us it’s not just about a sale, it’s about supporting the lifestyle, financial and wellbeing goals of business owners, their people, clients and communities. I’m incredibly proud of our M&A team at IDEX and the values we live by.”
What can we expect to see in 2024 for insurance businesses?
This year, we’re seeing a continued consolidation in the UK broker market, primarily because of an increase in active players, particularly American entrants. There’s also likely to be a stronger desire and focus by buyers to attract the best of the remaining pool of quality brokers, which over the past five years has reduced by around 28% from 2,500 to 1,800.
Regional and local businesses continue to struggle with regulatory demand, the ever-increasing issue around insurer service delivery and rising professional indemnity costs. In fact, in the past 12 months at least 37 firms had to close preceding June 2022, due to the rapid increasing costs of professional indemnity (PI) insurance, and a further nine firms closed between July and October 2022. This will continue to be an industry issue and efforts to push SME businesses online is not the answer, with broker frustration increasing on the topic.
During 2023 we saw an excess of 150 deals and 2024 has started at a similar rate. With the easing of inflation, which now stands at 4%, interest rates are likely to decrease predicting an improved deal environment for 2024.
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What are the top things businesses need to be prepared for in 2024?
There are a number of factors that will undoubtedly affect business performance and growth this year. From a people perspective it’s the continued increase in salaries across Professional Services and the skills shortage, particularly in areas like ESG, technology and procurement and supply. From a business perspective, increased regulatory control and tighter regulations will continue to be an important factor that leaders need to stay on top of.
Why should businesses looking to sell or buy work with IDEX?
At IDEX, we are uniquely impartial providing consultancy and support to brokers exploring their options, unlike other companies who often persuade a broker to sell to them.
Having worked in the insurance sector for over 30 years, myself and the team have over 100 years combined experience, with in-depth knowledge of the UK and international market and end to end sales process. What’s really important to us is ensuring that we find the best solution for the business, their people, clients and local communities. For us it’s not just about a sale, it’s about supporting the lifestyle, financial and wellbeing goals of those involved to help make a positive difference.
Due to our talent management expertise, we can also assist with business growth through the attraction of top talent, supported by a marketing solution that brings a company’s brand and EVP to life.
Over the past year we’ve matched 18 brokers with the right partner, adding over £80M of enterprise value to firms. The feedback on our approach, expertise and panel of experts, whether that’s legal, financial, marketing or HR, has been first class.
“IDEX continue to demonstrate their skill in sourcing and introducing high quality broking businesses that are aligned strategically and culturally with Clear. Buyers and sellers’ interests are fully understood and well managed throughout the process, leading to very successful outcomes for all parties” says Paul Beck, M&A Director, Clear Insurance Management.
Which area of insurance are we seeing the most M&A activity?
We’re seeing a spike of activity in smaller, regional and local community brokers due to the ageing demographic of some of these business owners. Brokers of this size, with small teams, struggle to find time to cope with regulatory demands and their profits are badly affected by rising PI premiums, which can make acquisitions and mergers very appealing.
The MGA market will also see more activity as brokers increasingly use the expertise, knowledge and solutions provided by an MGA to develop specialist solutions and enter niche markets with less risk.
For those looking to sell, how can they differentiate themselves from other businesses and make themselves appealing to buyers?
There are a number of things companies looking to sell should do. Even if you’re not looking to sell right now, but want to plan an effective exit strategy and get yourself into a strong position, my recommendation would be to focus on the following:
Ensure your business is in order – It’s incredibly important that your internal business affairs are organised. Ensuring all regulatory, compliance and HR/people obligations are up to date will not only save you time down the line, but it’ll also make you more attractive to a potential buyer.
Evaluate your business value – Taking the time to understand your financials and how your business is broken down is invaluable. This will help you address areas of risk and optimise profitable income streams.
Have a clear growth plan – Working with specialists to assess your current operations, identify new opportunities and potential barriers will help you create a clear strategy. This plan will help steer you in the right M&A direction for expansion. You should also consider your plans regarding any 'owned' premises, to ensure return on investment is maximised.
Don’t be afraid to hire to grow – Depending on your growth plan, you may need new talent to help you get there, whether that’s specialist knowledge, expanded networks and/or additional resource, don’t be afraid to invest in the right expertise.
Market your brand and differentiators – Be clear on your brand identity, unique selling points and differentiators. Marketing your company effectively is key to attracting and retaining customers, establishing a strong brand presence and connecting with your target audience. This undoubtedly helps you attract attention from the right buyers who align with your values.
Consider what a ‘good buyer’ looks like – Be open minded to various sale options. Thinking about and being sure of what a 'good buyer' means and looks like to you, your employees and clients will help mitigate any potential misunderstandings and mistakes further down the line.
Develop a plan post sale – It’s important to be clear on what your plans are post sale. Best practice is to have leaders stay on for around three years to ensure a successful merge and integration that doesn’t impact productivity and profitability.
Speak to an expert for guidance – Speak to an independent M&A specialist like IDEX, to discuss your options. It can feel overwhelming and complex especially when you’re not aware of what the transaction process entails. It takes time to find the right match and engaging with an impartial expert can help to rule out the non-negotiables to the negotiables, as well as ensure all due diligence is completed properly.
How do you think tech/AI will impact deals?
From research, we can see that AI is likely to improve the due diligence process by equipping leaders with accurate data to help them make better informed decisions and identify potential problems earlier in the transaction. M&A due diligence software enhanced with AI can scan thousands of reports and financial accounts to decipher key information quickly, minimising errors and considerably reducing the time spent on the process.
What opportunity is there for buyers at the moment?
Currently, there’s a great opportunity for buyers looking to expand their products, niche offerings and geographic footprint, with an abundance of great brokerages looking for the right partners.
Specifically, acquisition provides a great opportunity to acquire new talent and expertise which can add immense benefits to any company, it’s not just about attaining a book of business or customer relationships. With any sale, comes exciting prospects for current employees, opening the door to new job roles, career progression and skill development. It can also help attract new talent externally into a business that is seen to be in ‘growth mode’.
We’re also seeing a lot more international brokers considering UK acquisitions, such as Brown&Brown, Assured Partners and PSC who don’t necessarily have specific knowledge of the UK market, like an independent M&A consultant does. It’s extremely important for any broker considering an international sale or acquisition to investigate the cultural and ethical aspects of a partnership which is key to the long-term success of the business.
For a confidential chat on the M&A market and to explore your options, request a call back from Colin McKenna, M&A specialist.
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