JC Flowers’ acquisition of niche London market brokers SSL and Endeavour marks a growing trend of private equity firms purchasing stakes in distributors, with a particular flurry of activity sweeping the London market.


This is by no way the first time that smaller scaled London broking houses have faced the block by bigger market rivals – a movement headed by giants Aon and Marsh in the 1990s and early 2000s.

The likes of private equity-backed Hyperion - owner of RK Harrison and Dual -  and Ardonagh Group – the parent company of London wholesalers Price Forbes, Bishopsgate and Towergate, as well as a host of UK retail brokers - have carried forward this momentum in recent years (see table).

And this has undoubtedly had an impact on dynamics in the market – with the number of independent broking houses registered in London roughly halving in the last decade.

Tighter regulation, retiring business owners looking to sell, economies of scale, cost of regulation and competition from rival wholesale centres have all played a role in informing London market consolidation.

But while the general trend of consolidation is unarguable it is equally true to say that attempts to consolidate the mid-to-smaller tier of London brokers by private equity has been largely unsuccessful. In other words, ownership still remains relatively fragmented despite the classic private equity playbook of buy one company, bolt on others and sell on.

In this regard, It remains to be seen how activist JC Flowers will be following news that it has acquired the marine broker SSL today and is thought to have also acquired Endeavour, a specialist in North American delegated underwriting facilities.

According to sources, the two firms have a combined value of up to £50mn depending on future performance.

In fact - as an indication of the popularity of the London market to PE - the acquisition of SSL isn’t the first time the marine broker has been in talks with private equity.

Lightyear Capital tried and failed to expand Ed following its acquisition of what was Cooper Gay back in 2013 (see table).

An advanced sale process took place before being aborted on a failure to agree all terms.

Separately, Calera Capital-backed broker RFIB engaged in on-off conversations for several years with Tysers before being trumped by Integro earlier this year.

Other sizeable London market brokers owned by private equity include Besso - acquired by BGC Partners last year - and BMS, which recieved investment from Capital Z through the holding company Minova.

One of the reasons for the private equity groups failing to consolidate could be the cultural shift that takes place when private equity buys in. For some London brokers, the change in pace from investors with an eye on the bottom line can act as a deterrent to senior management toying with the idea of expanding capital bases.

Merging independently minded London broker management can also be a challenge and key to the success of the SSL acquisitions may have partly been down to the willingness of founder Andrew Sturdy to step away from executive management.

Nonetheless, private equity’s continuing interest in the sector has unnerved traditional acquirers.

In its 2017 annual report, Arthur J Gallagher said that the increase in private equity interest in the broking sector put the broker’s acquisitive growth strategy at risk.

“Continuing consolidation in our industry and growing interest in acquiring insurance brokers on the part of private equity firms and private equity-backed consolidators could make it more difficult for us to identify appropriate targets and could make them more expensive,” the broker said.

Last month private equity firms HPS Investment Partners and Madison Dearborn Partners, which own acquisitive broking house Broker Network (and, separately, the Ardonagh Group), completed a deal to buy the small London-based wholesaler Compass adding to its stable of regional and London market brokers.

In March the protracted sale of Tysers reached a conclusion after a year plus of negotiations, with Odyssey Partners - backed Integro acquiring the firm for a reported £110mn.

Late last year Canadian institutional investor CDPQ paid $400mn for a stake in Hyperion – owner of Howden and RKH.

While private equity investment in the London market is by no way a new phenomenon, the speed of transactions of late is notable.

Broking sources have repeatedly told this publication that there is no shortage of private equity looking to establish a foothold in the London insurance market - a factor which is also keeping valuations high.

With interest in London broking houses intensifying it’s unlikely JC Flowers will be the last outside investor to buy in to the sector but will it have more success in consolidating?