Taking stock

While recent movements by brokers show a desire to become publicly listed, Andrew Foxwell analyses how one company is bucking this trend by going private

Lloyd's broker Windsor's announcement that it could imminently quit the stock market and go private as a result of a management buyout came as something of a surprise to the broking sector last week.

For years, Windsor had been seen as a relatively strong performer, although since 2004 its share price has been on a downward trend; despite this, its directors' professed desire to take the firm private stands out against the current tendency towards more broker flotations.

From The Broker Network and Jelf to the Community Broking Group, many expansionist, acquisitive brokers have floated in recent years, mostly with impressive results.

In a statement to the stock exchange, the executive directors of Windsor, which has been listed since 1969, indicated that their reasoning for an MBO to take the broker private was because of the regulatory and compliance burden.

Good returns

They said that while Windsor had delivered "good returns" for shareholders, they believed a staff-owned private company "would be a major advantage for the business during the next few years as the insurance broking sector responds to the challenges introduced by the Financial Services Authority and a challenging market environment".

When contacted, Windsor executive chairman David Low would not elaborate on the statement.

Since the turn of the millennium, the fashion among brokers has generally been towards floating, as opposed to the 1990s de-listings.

The last major broker to go private was reinsurance specialist PWS in 2000; prior to that, Lambert Fenchurch went private in 1999 when it merged with CE Heath to form Heath Lambert, as did sports insurance specialist SBJ the same year.

Since then, this has reversed with a whole host of brokers joining the race to be publicly quoted either on the FTSE or the Alternative Investment Market.

THB took the plunge in 2002 (AIM), followed by the Community Broking Group (AIM) and reinsurance broker Benfield (FTSE) the following year. And in 2004, Jelf and TBN both listed on AIM.

On top of these new public companies, major broking players such as Giles Insurance, the Primary Group, the Towergate Partnership and the Oval Group have all hinted at a desire to float at some point.

Despite this, the number of publicly quoted brokers is only about half that of 15 years ago, according to Oliver Laughton-Scott, managing principal at specialist broker consultancy IMAS. He added that one factor that may boost the number of de-listing MBOs is the amount of funds being held by private equity houses and venture capitalists that are looking to place their money in broking ventures.

Mr Laughton-Scott said that brokers tend to evoke suspicion in markets because of their perceived instability: "At the small end, it's hard for quoted companies. People don't have time to investigate them because they are cyclical - people understand insurance but not cycles. Also, unless you can make acquisitions, there's no point to it."

As such, the consensus among industry-watchers is that broker flotations only work when firms use the capital they raise from the markets to fund acquisitions.

Floating a broker may have once been a way of realising the value of a business. Today, however, the likes of Towergate, Oval, and Smart and Cook are actively buying firms so selling to a consolidator has become a simpler option than seeking a listing.

In turn, it is these acquisitive firms, rather than those with ageing directors, that are looking to float in order to fund buys, a belief held by Grant Ellis, chief executive of TBN and one of the recent success stories - since listing on AIM in 2004, its share price has shot up from 71p to as high as 200p.

Suitable listing

Similar to other industry observers, Mr Ellis was none the wiser as to why the directors of Windsor want to take the broker private but said that for his company a listing was suitable.

"The main reason for being on the market is that it likes growth stories - you're put under a lot of pressure to grow. We have been acquiring new businesses so it's been perfect for us."

Jelf has also seen respectable growth, with its share price increasing by more than 40p to 183p since its purchase of the Goss Group earlier this year.

No one is willing to say categorically whether broker flotations have been successful or not during the past decade - the consensus is that they have produced a mixed bag of results.

Perhaps one of the lesser-known floated brokers, CBG, has benefited from its listing - while on a different acquisitive scale to TBN and Jelf - but has yet to utilise its access to capital markets.

According to its chief executive, Robin Slinger, since CBG's formation in 2001 it had always been the intention to float. While that was achieved in 2003, Mr Slinger said he did not expect CBG to start raising capital from the markets for at least 12 to 18 months, despite having completed a string of acquisitions.

He accepts that on the acquisitions CBG has completed it has been much easier to use publicly listed shares as part of the deals, since they are more desirable than private equity: "In that respect, being public is beneficial."

While CBG is planning its growth around its ability to raise funds on AIM, Windsor sees its future as a privately held firm. What remains to be seen is whether its shareholders accept the 52.5p per share option to grant Mr Low and his fellow directors their wish.

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