Broking supplement - Interview Toby Esser: Expansive thinking

It will be the greatest occasion we have seen in London for 50 years, it will be awesome. So what if the traffic will be bad for a few weeks? We will run a fantastic event, it will be a superb Olympics.”

Despite the groans of many who work in and around the capital about the upcoming 2012 games, enthusiastic sports fan and Cooper Gay Swett & Crawford chief executive officer Toby Esser is eagerly awaiting next August.

“As a nation we are so sporting crazy, everyone wants to go to the Games. Can you imagine the atmosphere in the swimming pool with Rebecca Addlington going for a gold medal? The noise will take the roof off,” he adds.

The link between whether London can put on a decent Olympics and Esser’s business dealings is not as tenuous as it might appear, given that his firm Cooper Gay merged last year with Swett & Crawford, a broker headquartered in the city widely believed to have put on the worst modern Olympics — Atlanta.

An accidental deal
However, Esser is quick to note that his own recent Southern US experience has been a total success in that it has created what he proudly claims to be the leading international independent wholesale, reinsurance and specialist broker, employing 1400 staff and generating close to $4bn (£2.5bn) in premium. It is thus somewhat remarkable that Cooper Gay chanced on this deal almost by accident.

“Cooper Gay operated in the US, dealing in the excess and surplus lines markets through six different offices,” Esser explains. “But we were relatively small and keen to acquire, so I had been over there looking for smaller businesses. With this in mind, I had made an approach to buy a part of Swett & Crawford, and it was only when we struck up a conversation did we start talking about the whole business.”

As soon as the parties began negotiations, Esser explains, both realised not only the great synergies, but that a lot of additional income could be generated by putting the two businesses together. And the positives did not end there: “I was very pleased with the culture at Swett, because it has a strong team ethic, like Cooper Gay has, which is about the collective team, rather than the individuals. And although it was a business that was previously owned by a large organisation in Aon [1997 to 2005], it has maintained a team ethic.”

Because Swett & Crawford was a US-focused wholesaler and Cooper Gay has a broad global footprint stretching across 60 countries on four continents, there was little cross over, which meant fallout has been limited. “We lost two kids on the West Coast in the integration, but that was it. It was relatively simple.”

Although a CGSC holding firm has been 
created, the individual component firms, whether in the UK, US, Junge in Germany or Creechurch in Canada, have kept their branding. The 
management has also been retained.

“We don’t buy businesses with broken 
management, and did not look at Swett as a bad business; we looked at it as a well-run one, so having the existing team run it made perfect sense,” Esser adds.

Sales-driven business
As to what lessons the wider group can now learn from the merger, he explains employees from both sides of the Atlantic have been seconded by each business, adding: “[Swett & Crawford] is a very sales-driven organisation. American businesses tend to be more about raw 
sales than we are internationally, and that culture does not often translate over different borders.

“But you can always learn something from that attitude, and it is important that we are more sales driven, while doing it in a way that matches each business’ culture. Fundamentally we all operate very differently, and we cannot make everyone do things in the same way.”

Esser’s passion for London does not end in his confidence in the 2012 Olympics, or indeed football – he is a Chelsea fan having grown up and been schooled near the ground “when they were rubbish” – but the long-term health of its insurance market.

He recently wrote an impassioned View from the Top article in Post, bemoaning the lack of significant London-headquartered brokers — JLT and his own firm being the exceptions — and has heartfelt opinions on how London is viewed on the wider international stage.

“The fact is that right now the London market is not as competitive as it has been for North American business. So Lloyd’s is still the number one writer for E&S lines, but that does not consist of much open market business, rather longer facility type deals.”

Asked to detail the malaise holding London back, Esser factors in elements such as over-regulation by the Financial Services Authority and the fact many London market brokers are run as lifestyle businesses, rather than for the benefit of shareholders.

But his major gripe is cost: “We are clearly an inefficient market. We keep trying to improve things, but are still not trading electronically and it is hugely costly despite the efforts of the market to turn that around.

“There are people who are trying very hard so it would be unfair to say that [the pockets of innovation] are just lip service, but the reality is that as hard as we have been trying for a period of time, we have not cracked it yet.”

He adds: “There are successful developments such as endorsements and electronic claims, where we are at the forefront. But there are still Lloyd’s brokers who ask ‘why do we need it?’.

“We should be trading paperless today and could do that in a short period of time. But the only reason we don’t has nothing to do with technology and everything to do with the personalities and mini fiefdoms [in the market].”

Ultimately, Esser believes it will be up to Lloyd’s and the London Market Insurance Brokers’ Committee to drive progress, and he has a radical suggestion for dealing with the firms that continue to drag their feet.

“We should create a system that rewards those firms moving forward and penalises those that do not want to. And until you settle on a date or penalty, you won’t get these things over the line. It is amazing what happens when people get told, ‘sort it out by a certain date or you won’t qualify’. Things start to get sorted.”

Flotation ambitions
Given the issues Esser has identified in the London market, it may be a surprise that CGSC is still headquartered in the city. “We have to do the best for our shareholders, and if that meant moving the HQ we would look to do it,” Esser comments. “Right now though, there is no great benefit in it.”

One option, which continues to follow Esser and his business, is that of a potential initial public offering on the stock exchange. While this remains the longer term plan, the current market environment means it has been pushed down the agenda for now.

However, Esser admits he is in regular contact with prospective investors, including private equity houses despite completing the Swett & Crawford deal without recourse to refinancing.

“We continue to talk to people like that. It is very healthy and I don’t think you should start those conversations when you absolutely need to; you should have them in advance. That applies to private equity or potential equity investors [which may be interested in supporting an IPO], as well as investment bankers and stockbrokers, to make sure you understand the markets, so that when you need to make a decision, you’re ready.

“But right now the IPO markets are terrible, which means the focus is more on the debt markets and private equity, not an IPO. But if the IPO market got better we would like to be able to turn that tap on quickly. Our strategy is to be a listed business at some point, but we will only pursue that when it makes sense, and it doesn’t right now given the craziness of the market.”

As to where the business would float, the timing would dictate the location, Esser explains: “It is pretty awful in the US, as it is in the UK, although it is certainly better in New York than London, So if you were looking to list the business today you would be looking to the US, because the regulatory and IPO markets are better.”

Following the path
What remains certain is that Esser is still hungry to grow the business through acquisitions, as well as organically, and is starting to see life even in the UK and US markets.

“We continue to look at bolt-on deals, whether it is hiring new teams or buying small businesses,” Esser says. “We are keen to do more of those, and continuing to follow that path. We would also look to do a major deal if we could find a suitable one. If it makes sense, then it doesn’t matter what the size is.

“Internally, we could find the cash to do a deal of a reasonable size, but once you get into businesses valued at tens to hundreds of millions of pounds, then we would have to go out externally to fund that deal. But there is no shortage of available money out there.”

With this in mind, it is no wonder Esser is as bullish about his business as he is about his football team. Although, unlike Stamford Bridge, there appears to be no immediate obstacle to CGSC’s growth.