There are two types of insurance brokers in Ireland at present: those looking to consolidate the industry and those that are being consolidated.

Primarily backed by a wall of international private equity, a small number of large brokers are currently on a land grab in Ireland, all seeking to gain a foothold in a potentially lucrative market. It has prompted a wave of dealmaking, with close to 30 transactions closing in the last two years.

There are in the region of 125 locally owned brokers around the country with a turnover exceeding €500,000. The expectation is that, within five years, there will be ten dominant players, with the remaining independent brokers competing in niche markets.

Sean has written extensively about the economic model underlying the consolidation:

“This is the name of the game. Buy up lots of small brokers at eight times Ebitda. Combine them into a platform. Then either run the business, or sell it on to the next private equity buyer at a multiple of 15 times.”

The eight times Ebitda valuation is significant. It is enough to turn the heads of brokers, many of whom are nearing retirement. It is also a number high enough to dissuade employees at the various brokers from making their own bid. But, when a broker is incorporated into a broader group with revenue synergies and cost efficiencies, it is still low enough to make sense for the consolidator.

Aston Lark is one such consolidator. From a standing start in 2020, the UK company has become one of the largest brokers in Ireland after closing 11 individual acquisitions, the most recent of which was announced last month. More are expected in the coming months as it continues its expansion.

When Robert Kennedy, the CEO of the Irish business, took over in March 2020, he was charged with tripling revenues to €30 million by 2024. This was achieved in just 18 months, and the new target is to grow commission revenue to €60 million within five years.

However, the group has also been consolidated itself. The broker had been owned by Goldman Sachs Asset Management and Bowmark Capital. However, last October, it was acquired by rival insurer Howden, in a £1.1 billion deal that gives the combined group the scale to go head-to-head with the so-called ‘Big Three’ from America – Marsh, Aon and Willis Towers Watson.

The fact that Goldman sold out was not a surprise, but the timeline was earlier than expected. The sale will bolster the Irish operation, as Howden does have a base here.

“In the back of one’s mind, one was always thinking where could we end up next? That doubt has been removed now,” said Kennedy, a former executive with Aon and Aviva.

“Goldman were clear from the get-go that it was a five-year play. We don’t have that issue now. As Peter [Blanc], the CEO of the Aston Lark, described it when the deal went through, it is now our forever home.”

I caught up with Kennedy to discuss the wave of consolidations among insurance brokers in Ireland, and what this means for the industry and for consumers. We began the conversation, however, by discussing what the Howden acquisition means for the enlarged group’s plans here. 

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Ian Kehoe (IK): You have been a consolidator while also being consolidated. I will come to your own acquisitions in a moment, but how does the Howden deal impact upon the activities of the Irish operation?

Robert Kennedy (RK): A pre-emptive letter came in from one of three parties that became involved in the bidding process in around July. It was a couple of years into the ownership of Goldman Sachs. Goldman Sachs looked at the offer and thought it was quite attractive but wondered if they threw it out to a couple of other parties that they might be able to get some more. They allowed the management team to handpick who the other two parties were, one of those was Howden. It all happened in a very short space of time. It was not scheduled to happen until September 2024; that was the date they had in mind. Howden came up with a very compelling offer.

For everybody working in Ireland, it is particularly compelling on the basis that they don’t have an operation here currently. It is a case of keeping the band together and keeping going.

IK: So, there are no integration issues on the ground here?

RK: There is no confusion for staff as to what their future role is going to be. There will be a role there for them.

Growth trajectory in Ireland

IK: Ireland was a big play previously for Aston Lark. Howden has talked a lot about Europe. Will Ireland remain a priority?

RK: The business plan that myself and Mark Nolan signed up to deliver was to triple the size of the business between March 2020 and September 2024. We managed to do that within 18 months and the business plan now is to try and see if we can double the size of the business in the next five years.

IK: Can you put some numbers to that growth trajectory?

RK: We went from €10 to €30 and now we intend to get to €60 million. It is a combination of organic growth – we ran reasonably well last year – and M&A is obviously going to form quite a big part of that as well.

There might be particular sectors or niches where we might seek to hire specific expertise in. For example, we just hired a guy called Jeff Lord in the employee benefit space; he has a business plan that he is going to build out over the five years to support a lot of clients that Howden might have internationally who might have operations here. It could be tech businesses, or FDI businesses.

IK: When you refer to revenue, I assume you are talking about commissions and not gross premiums written? What are those numbers?

RK: It is about €150 million. And then €30 million in revenue to ourselves.

Private equity and industry dynamics

IK: There has been a fundamental land grab in this industry. What has been the genesis behind it? What is the economic model behind the wave of consolidations?

RK:  First, demographics. If I was to invite you at any industry event, the average age of many of the principals in many of the brokerages in Ireland would be 55 to 70 – probably closer to 70 than 55. After the crash in 2007, there was virtually no succession planning because anyone who had children who might have had an inkling to go into the business was dissuaded from doing so.

Also, because valuations are at a high point – not just in insurance brokerages but more generally through private equity investment – it means that the idea of staff buying out the principals has gone by the wayside.

And the predictable earnings of insurance brokerages generally – and the fact that they are cash generative businesses – make them very attractive. There is also the fact that we can achieve economies of scale. There are certain cost efficiencies and revenue synergies.

IK: You have bought a lot of regional brokerages who have strong ties with the customers. How do you keep those customers? In my hometown of Enniscorthy, both Kelly Insurance and Creane & Creane have been acquired, albeit not by you. But how do you keep customers like me?

RK: The model that we have is quite simple. If we acquire a business today, our preference is that anyone working in the business will continue with the business. We don’t want to let anyone go, we don’t close the office. The value for us in any business is the relationship that people have with the customers. In all of the acquisitions that we have done, only one person – Breda Burns – has left the business. She was 61 and she wanted to retire. Her son Evan is now leading the business. We want to keep people employed. In fact, we probably have employed more people than those businesses would have because we are prepared to invest in the business to grow into the future.

IK: How many acquisitions have you made?

RK: Eleven in total, but we will complete more acquisitions this year as well.

IK:  Do you see a cap on acquisitions?

RK: There is no limit to our ambition. They only limit is whether or not there will be any more brokers left for us to acquire that we would see as being likeminded.

We evaluate brokers based on three criteria. Do they look after their customers? Do they look after their staff? And do they treat insurers with respect?

IK: I assume earnings come into play also?

RK: Absolutely. But before we even get to that point, they are the three criteria that we apply. There might be 125 brokers who might be turning over €500,000 revenue, and we have whittled it down to a lit of about 25 or 30 that we would want to enter into a partnership with.

M&A during a pandemic

IK: You took over as Covid shuttered the economy. How did you find building the business remotely?

RK: Very odd. Any job previously, I was always out and about meeting people – be that insurers or brokers. And I was suddenly confined to my daughter’s bedroom. It was not easy and it was not easy for many of the people working in the business. we tried to support everyone.

IK: What about completing acquisitions?

RK: That was probably accelerated in some ways.

IK: People reassessed their lives?

RK: Anyone who was on the fence probably decided it was the right time to sell or consider selling. It also accelerated any deals that we could do, because I could be chatting to broker A, B, and C on the same day. Previously I would have had to drive to three different locations, meet them, meet advisers. All of that went by the wayside.

IK: What sort of timeline do you look at in terms of deals?

RK: Ideally three months but it can stretch to six months.

Organic growth and bargaining power

IK: You have grown through acquisition. But what is the organic growth plan?

RK: Our business is slightly different to some of the other consolidators in that we are not looking to strip costs out of any business. we have a centralised marketing team, a centralised compliance operation. If I think of North County Brokers, a business we acquired in Balbriggan, John was spending a lot of time worrying about whether there was tea or coffee in the canteen, or if the printer was broken. By taking away all that IT and operational issues it allows him to spend more time out with his customers and thinking about what other new business he could go after. The organic growth piece, together with the market access we can provide, it takes care of itself.

IK: You have greater bargaining power in terms of negotiating fees with insurers. Will the consumer see the impact of that?

RK: There are two sides. Yes, we probably get better commission deals. But our customers get better deals on the back of it as well. We are able to apply pressure to insurers to make sure that they write risks for customers that they would not normally want to write. And at better prices than they would normally get.

Business lines and niche players

IK: Let’s talk about your business mix. How are you split between commercial and personal?

RK: Probably about 80, 85 per cent commercial and 10 per cent personal. The balance would be life and pensions, which is a small but growing piece of our business.

Our initial focus was on commercial insurance. But we became a personal lines broker almost by accident, as opposed to design. We now have a significant personal book. Of the €150 million we manage, about €20 million is personal. We are building out the proposition around that and we have invested quite a lot in terms of bringing people in. Personal lines will be a really important part of our business going forward.

On the life and pensions side, it is a bit trickier. If you are acquiring a broker that has just commercial and personal, you only have to notify the Central Bank that the transaction is being completed. In the life and pensions space, you need to get prior approval, which adds considerable costs to due diligence. We recently did a deal with Marine & General. Gavin Kennedy runs the life and pensions business there, and we are comfortable with him and know he can lead out that individual life and pensions business for us going into the future. It will be a focus, but it is not as easy to transact or acquire brokers in that area.

Future of the industry

IK: We have seen 30 transactions in the industry over the past number of years. Where do you see the market going? And what will that mean for the consumer?

RB: In a couple of years, there will be ten very large brokers. There will still be a role for the smaller broker though after that, but they will have to be more niche than they are today. It won’t be the case that you can just operate on the main street of a town in Ireland; you will have to have a niche that you can hang your hat on. For all the brokers that we have spoken to, there is still quite a few who want to remain independent; they value their independence. There will still be a cohort of independent brokers. There just won’t be as many.

In terms of what that means for the consumer, well, the competition will still be as fierce as it ever was between those ten brokers and whatever independent brokers are left thereafter. Choice wont ever be an issue for the customer. Also, given the buying power those ten brokerages will have, plus the likely niche expertise of some of the smaller brokerages, it will be positive from the consumers point of view.  If I think of the customers of one of the small or medium sized brokers that we have acquired, they now have access to a broader breath of products. They have a network of colleagues with Aston Lark who have expertise in loads of different areas.

IK: We have seen many official reports about the high cost of insurance. Do you see prices coming down?

RK: Certainly, motor insurance premiums are coming down. Hopefully they will continue to come down. Covid had an impact because frequency has come down. Traffic patterns have changed.

On legal reforms, it is still early to say what they overall impact will be. The pressure we will be bringing to bear on insurers is that improvements in their performance will be passed to the consumers. That is our role, to advocate on behalf of our customers to get lower premiums.