More ladders than snakes

COBRA Holdings’ CEO, Steve Burrows, talks through the acquisition of UK & Ireland Insurance Services (UKI) and his game plan for expansion. M&A’s Morag Dickson reports

COBRA Holdings’ CEO, Steve Burrows, talks through the acquisition of UK & Ireland Insurance Services (UKI) and his game plan for expansion. M&A’s Morag Dickson reports

More ladders than snakes

COBRA Holdings’ CEO, Steve Burrows, talks through the acquisition of UK & Ireland Insurance Services (UKI) and his game plan for expansion. M&A’s Morag Dickson reports

Steve Burrows is the architect behind COBRA Holdings, one of the UK’s fastest-growing independent insurance groups with a network comprising more than 100 independent insurance brokers.

In a bid to enlarge the group’s nationwide offering, COBRA acquired UKI Holdings and its subsidiary, UK & Ireland Insurance Services (UKI) in October for some £4.3 million.

Formed in 1993, UKI is a Manchester-based general insurance brokerage specialising in commercial insurance, mainly for the construction industry. The acquisition will enable COBRA Insurance Brokers to establish a presence in Manchester, from which it will develop its presence across the northwest region.

“This is exactly the kind of win-win scenario we try to emulate at COBRA,” says Burrows. “In terms of what we stand to gain, UKI will introduce new revenue streams, generate additional income and increase our gross written premiums as well as offer potential to redirect business to our wholesale insurance and underwriting companies. Vitally, the addition of UKI will provide COBRA Insurance Brokers with a hub in the Manchester region – an area where we are keen to expand.

“As a generalist commercial insurer with a specialist focus on the construction industry, UKI was missing out on work from the larger contractors because it didn’t have a London office. With open access to the City through COBRA’s London Markets division, we can give UKI the business channel it needs to flourish in the home of the UK construction industry.”

COBRA intends to leverage UKI’s strong brand in the construction industry by retaining the name for construction business.

Burrows’ two-way street philosophy is timely considering the fierce nature of consolidation driving the UK’s insurance industry. And he acknowledges that today’s insurance industry is a very different animal to the market he entered 20 years ago.

COBRA’s conception

Burrows notched up appointments with Sun Alliance, Berry Birch and Noble before co-founding insurance brokers and financial services company, BKG. Having demonstrated corporate ladder climbing at its best, he was forced to take action in 2002 when the company he had chaired for 18 years was threatened with a takeover.

Rather than lose the company’s independence altogether, Burrows approached rival Truman Lincoln, swiftly agreed a 50/50 merger, and renamed the enlarged entity COBRA – now a major UK-based retail and wholesale insurance broking group with more than £350 million of annual premium turnover.

“One of the founders of Truman Lincoln, John Lincoln, and I spied a window of opportunity at the height of a consolidation drive in the UK insurance industry,” he explains. “We came up with the idea of marrying our expertise to safeguard BKG and Truman Lincoln against being bought out by larger companies.”

Cobra Insurance Brokers and COBRA Holdings were formed in January 2006 as a result of the merger. The group comprises six separate companies (see box, bottom), and is now one of the top five UK independent insurance groups, including its Network.

The COBRA Network

The former companies were founder members of the COBRA Network, an independent network of like-minded commercial insurance brokers which essentially forms the hub of the group through which business flows to and from its companies.

“Initially, it began life as a network of seven or eight friends in the insurance broker industry,” says Burrows. “They got the insurance companies semi-interested and we were able to entice them with turnover forecasts of between £50-£80 million inside three years. After twelve months, we achieved £150 million turnover and quickly realised this was a decent and scalable business.”

The Network’s business model is based on a national strategy allowing regional brokers to access markets not previously available to them. These firms are then able to take advantage of a range of services, including improved commission structures, advanced policy wordings, schemes, compliance advice and training. Through the roll-out of this business model, the COBRA Network currently assists 115 to 120 businesses.

“We don’t own these businesses per se,” he clarifies, “but we provide the management services for them. We give them the kind of access to the insurance market that they would otherwise not get because individually they are too small.”

AIM float

“The insurance industry is such that whilst we remained a limited company, the market wouldn’t recognise us. So we hatched a plan to float to raise our profile with insurers and investment companies, which in turn increases our funds.”

The seed to float was first planted at the time of the merger.

Burrows said: “In addition, when we first put the companies together in 2006, it became obvious that neither one was going to become the dominant party. As we owned 50 per cent of the network between us, it was only ever going to be a merger of equals. So, because neither could afford to buy the other, the idea was to merge the shares together and then one day, float the business.

“My idea was to float in January 2007, but with International Financial Reporting Standards (IFRS) obligations becoming a legal requirement of all AIM-listed companies, we thought it wise to complete COBRA’s IFRS conversion in the pre-IPO period, thereby delaying our float schedule by seven months.

“Essentially, this meant aligning all our accounts with IFRS. We had to backtrack as though all the companies had merged three years ago and revise three years’ accounts across eight companies. That makes 24 sets of accounts. By the time we had done that, we ended up floating in July, which was just about the worst time to float.”

Indeed, the summer saw a number of U-turns on the IPO front. Lion Capital’s investors balked at the £225 million target valuation of noodle bar chain Wagamamas, scrapping any plans of a listing, Phoenix Equity Partners reneged on its plans for Gaucho Grill’s LSE float and TA Associates postponed SmartStream’s admission to trading. The fact that private equity giant KKR got cold feet and deferred its $1.2 billion (£582 million) listing amid investment concerns must have sounded alarm bells. Still, COBRA went to market.

“Although the price wasn’t right initially and we nearly had to back out at one stage, the float went ahead and worked fine for us,” says Burrows.

Snaking onwards and upwards

With an AIM float behind him and the number of post-float acquisitions already piling up – first TUBBS Insurance Services and then UKI – you’d think Burrows would be taking his foot off the pedal. Not so. COBRA is currently having due diligence performed on a further 11 companies for purchase.

“Ordinarily that would be difficult to co-ordinate,” Burrows admits, “but we have refined an acquisition system at COBRA that involves an acquisitions team comprising acquisitions director, Phil Truman, and group financial director, Hannah Poulton, among others. Together, we have devised a contractual template that we can replicate across companies, and with Baker Tilly conducting due diligence on our behalf, things are so regimented that we can merge a new broker every six weeks.”

This is a strong indicator that small-scale brokers will be in ready supply for some time to come.

Burrows believes so. “It’s a buoyant insurance broker market. They say 90 per cent of insurance brokers are currently for sale – and bearing in mind that there were 12,500 brokers 12 years ago and only around 3,500 today, you can see an impressive rate of consolidation.

“With comment from some of the major insurers that they want to reduce the agency base to 500 over the next five to six years, there will be 3,000 brokers and brokerage staff looking for a home, so there’s still a lot out there to play for. For that reason, I think consolidation will continue for the next five or six years until only the top 500 or so will exist without being in a network.”

COBRA Holdings’ companies:

COBRA Network

COBRA Insurance Brokers

COBRA London Markets

COBRA Underwriting Agencies

COBRA Financial Services

COBRA Corporate Solutions

COBRA Insurance Management

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.

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