News analysis: If PIB has reached an end game with Carlyle and Apax, what next?

It is often a case in insurance that you cannot keep a good rumour down.

In March, Reuters revealed that private equity house Apax Partners was weighing up options, including a sale, for its interest in PIB, adding it expected the broker to appoint a financial adviser to gauge buyer interest in the business later this year.

Now, it has been reported by Insurance Insider that an adviser has been found, with both Apax and minority shareholder Carlyle Group jointly appointing Evercore to test the market to realise their investment.

With PE backers, it is always a case of when—rather than if—they will decide to get out, and this is as true with PIB as it is with any of the many other brokers with external investment in the UK intermediary space.

So whether it is sooner or later, what could the market look like for PIB in terms of future ownership should the ‘for sale’ sign be hoisted?

European trendsetter

Winding back, PIB initially sought investment from Carlyle in December 2015, having previously been bankrolled by its management team and external private investors.

Europe offers plentiful opportunities for M&A for 2023 and beyond

Apax came aboard in January 2021 as a majority shareholder, with Caryle re-investing for a minority stake.

This came at a time when PIB had become something of a trendsetter among its consolidator peers, making early plays for mainland Europe with Optis Insurance in Ireland (February 2019) and Marx Reinsurance in Germany (June 2020).

And whilst the Irish deal might have been framed as a post-Brexit play with CEO Brendan McManus, pictured, commenting: “Preparations have been made that will allow us to operate in Europe. No matter what the future holds, PIB is committed to meeting the ongoing needs of our customers,” it proved to be the start of something much bigger.

19 Irish deals to date

PIB has since done 18 more deals in Ireland, including Creane & Creane Insurance, Oliver Murphy Insurance and Wexford-based Campion Insurance, with Munstergroup Insurance, based in Ennis, County Clare, the most recent in October 2023.

It now also has a presence in Netherlands, Germany, Denmark, Poland, Italy, Spain, Portugal and Romania with the last two countries the latest to have a PIB flag planted on their soil.

Other UK brokers have played in overseas M&A, but few have gone in as hard and determined as PIB.

Tactical shift

Writing in Insurance Age last year McManus explained its strategy: “Some countries’ insurance markets, such as Spain, Poland and Ireland, were (and remain) fragmented, which is a key factor in uncovering value. When you factor in the economic conditions, finding value is at the forefront of investor strategy, and we’ve seen some tactical shifts towards different territories.”

He added: “Europe offers plentiful opportunities for M&A for 2023 and beyond. High levels of fragmentation and low market maturity in some countries, together with a lighter regulatory burden and lower pricing expectations, mean we expect to see investor attention focus on the continent.”

The pan-European buying spree has helped to increase PIB’s headcount from 2,375 people to 3,858 staff, according to a recent filing at Companies House. The document that detailed revenue for the year ending 31 December 2023 rose 43% to £463.8m; and that for all its international aspirations the UK still accounted for the majority, with £304.7m of the total.

That said Nottingham-based RS Insurance Brokers in September, remains PIB’s only UK broker buy in 2024; and its first since residential property specialist St Giles in April 2023.

In that same period it has bought in Ireland (three times), Italy (three times), Poland (four times), Romania (once) and Spain (four times); and this expanding international footprint certainly makes it stand out among other possible broker investments.

Too random?

The question has been posed, though, whether PIB’s recent M&A strategy might be considered too random to pique the interest of potential acquirers, and whether any synergies and benefits can actually be accrued through this type of diversification.

When this question was posed to one investor who has a track record in the broking space, they said: “From my perspective, it is a strategy that works. While there might not necessarily be any significant synergies across these [different] countries, having a presence there gives you a substantial runway to help achieve continued growth.

“If you are focused on one on the jurisdiction when you get to £70m-100m Ebitda or whatever it might be, that changes the growth projection you can achieve in that country, and it becomes a bit more challenging.”

They added: “So if you have access to markets like Germany where there are 20,000  brokers, and it is 10-15 years behind the UK in terms of the consolidations story, there is plenty of opportunity. Many people are moving into Spain too because it is fragmented, so I see a lot of value in internationalisation as a tool for continuing to grow a business.”

More than the sum of its parts

Another investor added: “I’d pose the question, why is something that has flags in different countries worth more than the sum of its parts? Well, it is because you can be a better owner of businesses across multiple jurisdictions.

“Let me explain. If you think about it from the perspective of a small but ambitious platform in Spain, Netherlands or wherever, that has two options in front of it: One is a local mid-market private equity play that is going to want you to triple the size of your business, and that is one dimensional in that they are going to be pursuing growth and putting all their efforts and pressure on you to achieve that.

“The second might be someone that comes to you who is based in the UK and has a good people and culture approach that says: ‘I will give you the best of both worlds; you will be my platform in X country, and because we have a low cost of capital as we are a bigger, diversified enterprise we can give you all the support you need – but you don’t have to deal with this PE guys directly, you can deal with me and I’ll deal with them’.

“That can be really appealing. You can be a good owner of a business that is outside your geography even though there aren’t any hard financial synergies between the two.”

Employee benefits attraction

Another investor noted an attractive factor when financially backing brokers was specialisms, with employee benefits figuring highly.

The expert said: “There is a relatively small number of scale players [here in the UK] but a large pool of smaller ones, and not many we’d call mid-market, so we are very excited about that [area] and I suspect a number of others in the industry are as well.”

Private medical insurance is becoming a standard part of Employee Value Propositions in a bid to boost retention

McManus, from his track record, appears to agree. Last year, he noted: “A great example of a part of the market with good value and growth potential is employee benefits. In continental Europe, employee benefit products have always had a significant health insurance aspect due to the lower state funding levels in many healthcare models.

“In the UK, due to the NHS and historically high levels of state funding, offerings have focused more on wellbeing and additional services, such as dental care or eye care, and have been a smaller part of broker revenues. However, this is changing, with private medical insurance becoming a standard part of Employee Value Propositions in a bid to boost retention.”

Again, PIB has taken action here. So, while it might have only acquired one UK insurance broker since McManus made these comments in July last year, it has picked up two businesses in YouatWork and RBIG through its specialty and employee benefits arm.

Based on this investor feedback, PIB could indeed spark interest from the PE community once a sale mandate is confirmed.

Lots of PE interest 

This is supported not only by these comments but also by the fact that when PIB did its last round, McManus explained: “We had a lot of interest in the business from some great PE brands, and there were a number that we could have chosen. They all had experience in the sector, which is important to us, and they were all quite big funds.”

Given that PIB has not diverted but arguably doubled or tripled down on the strategy it presented to investors in 2020/1, those who were in the running then might renew their interest.

As for potential trade buyers, there are plenty of the obvious larger candidates whose names repeatedly come up when any significant deal is touted, such as Aon, Brown & Brown, Howden, Marsh, and Gallagher. All of whom would get a substantial uplift in their UK, specialist, and European presence by snapping up PIB.

Indeed, for Brown & Brown, it would almost double its UK size in one fell swoop while giving its fledgling European arm a strong foothold outside Ireland.

M&A waves

Recently when asked why it had slowed down its M&A activity in the UK in recent years Gallagher UK and Ireland CEO Michael Rea told sister title Insurance Post: “Firstly there are fewer bigger businesses coming to market so there is a supply side piece, and these things come in waves.

“We have been lucky enough to buy a number of sizeable consolidators like Stackhouse Poland and Bollington, and on the back of that, the PE guys have done quite nicely, and so they have reloaded and gone again.

“That, therefore, gives us another 3-4 year window [for these PE-backed brokers to grow], and we are now seeing some of those coming onto the market with DRP sold to BMS; so there are windows when these businesses become available, and the last couple of years those businesses have been in build mode.”

Timing is everything, and Rea’s words seem to underline that Apax and Carlyle might be well positioned to maximise the value of their assets given the shrinking supply but still active demand in broker M&A. Last week alone, we saw two Top 100 Brokers, A-One and Griffths & Armour, sold to Clear and Aon, respectively.

Growing number of trade buyers

This demand has only become greater with the newer wave of US brokers looking to establish larger footholds in the UK, such as AssuredPartners and Acrisure, for whom PIB would be a transformational deal.

Is it even inconceivable that newly minted Specialist Risk Group – that is publicly eyeing up prospective buys in Europe following its latest fund injection from private equity house Warburg Pincus and Singapore government-owned investor Temasek – might decide to throw its hat into the ring?

When asked to comment on a [albeit smaller – but still substantial] target recently a spokesperson offered the following quote: “Specialist Risk Group (SRG) is a successful and growing international insurance business, which is attracting significant interest across the insurance and wider financial markets.

“As a fast-paced and agile business, we are always having discussions with a multitude of different firms, teams and individuals keen to be part of SRG’s ambitious and successful growth journey. We do not, however, comment on speculation.”

Speculation

And for now, publicly, Apax’s and Carlyle’s prospective plans to realise their investment in PIB are speculation. 

When Insurance Age approached PIB with questions relating to Evercore, the sales process, potential outcomes, and whether Apax and Carlyle might be looking for a full or partial exit, a spokesperson said: “At this point, we will not be commenting further on the future of PIB Group, but it is business as usual on all fronts, and the team at PIB Group continues to focus on providing the best specialist insurance solutions across Europe.”  

But should Evercore be testing the market as you read this, given the hypotheses of both investors and PIB boss McManus about what makes a successful and attractive broker seem to align, it should have a decent amount of interest among both the trade and PE communities. 

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