When Peter Cullum discusses acquisitions, people sit up and listen. Since setting up insurance intermediary Towergate in 1997, he’s overseen the buy-outs of over 130 companies. Fourteen were purchased in the past 12 months alone.
Conventional wisdom has it that buy-and-build strategies don’t work, but if you’re conventional in your approach to life you won’t become a tycoon. Cullum, who was number two in Growth Business’ Power Top 50, says: ‘We have a Pepsi Cola formula for our acquisitions. Sadly, it’s not as good as Coca-Cola but we have some really interesting ingredients in our business model. Nothing in this world is unique, but our approach is quite different.’
Being hands-on certainly helps, which can’t be straightforward with 3,500 staff spread across 100 offices. Self-effacing and approachable, Cullum is quick to point out that M&A director Kenny Maciver has played a key role: ‘Okay, I’m involved in deals but the hard work is done by many of my colleagues rather than me. We’ve been doing this for ten years; Kenny has been pivotal in the deals we have done.’
The year ahead
Cullum says that deals are in the pipeline for 2008, but he will be taking time to ensure he beds in the opportunities created by the companies already acquired, such as insurance software house OpenGI, which is the company’s biggest purchase to date at £275 million. ‘It’s all very well spending hundreds of millions on deals but you’ve actually got to make them work.’
When on the lookout for a takeover, Cullum says, Towergate, which he expects to generate turnover of over £3 billion by the end of the year, wants the acquired business to provide a return on investment of at least 20 to 30 per cent.
With Towergate’s dedicated M&A team, the company can be seen as a private equity institution in its own right. ‘We live with rejections. We pick up the phone and talk to a lot of people and they tell us politely they are not for sale. But it is a rapidly changing landscape in our sector and there are smaller players looking for an exit.’
He observes that, when scouting for prospects, a degree of subtlety is required. ‘These deals take us quite a long time. It isn’t just a phone call and then we strike a deal, it’s about courtship,’ he says.
Towergate’s story began six years before it started trading when Cullum was headhunted to lead Economic Insurance, a Kent-based division of a Danish financial services giant. Shortly after he joined, however, everything changed. The parent company ran into financial difficulties and Cullum had to act fast to keep the business going. That’s when he decided to buy it himself.
‘After a lot of kneeling in front of banks I managed to successfully complete an MBO,’ he says. ‘It was just a crazy deal in that I was buying £13 million of largely cash assets for £6 million, so it was a huge discount to net asset value. But I still struggled to get private equity to invest in insurance because it was seen as dull and high risk.’
After completing the deal, he continued to lead the business until 1996, when he was approached by a larger operation. He decided it was the right time to exit the business, and sold it for more than £30 million, making a significant return for all investors, including management and staff.
A deal-maker is born
Post-completion Cullum realised that it was to be a defining moment: ‘I recognised that I had become unemployable in the conventional sense and wanted to do my own thing again.’ He decided the best option was to make use of his deal-making experience and build the Towergate Group through targeted acquisitions. He structured the group’s financial model entirely around this strategy. ‘We effectively have a different financial model so that we can buy a business and re-engineer its financial dynamics to improve profitability quite significantly.’
The drive for growth is incessant. Just over a year ago, Cullum secured a £580 million refinancing deal and took on additional investment through a £100 million preference share issue to two US fund management firms. It was these two transactions that provided the ammunition for the recent spate of acquisitions and now Cullum’s on the hunt for another war chest: ‘We will be looking for a major refinancing as a pitstop because we have huge ambitions for further acquisitions in our sector. There are some great opportunities and we are as enthusiastic and as hungry as we have ever been.’
The regional businesses that Cullum targets are small to medium-sized enterprises, not the big ticket international insurance broker with global clients: ‘So if a prospect happens [to have a global corporate organisation on the books] we would not be the underwriter or broker because it would be too complex with global risk – there are better people in the marketplace who could handle that type of business,’ he says.
Towergate’s own market is primarily the UK with a modest overseas operation.
‘We are deliberately local. We have more than 100 offices in the UK in all the major conurbations, so we still offer a local service rather than move to big call centres [abroad]. It is all UK-based and it is about local service, which works.’
Cullum is more than happy to put his money where his mouth is and show his faith in Towergate’s strategy through part financing these deals. ‘We don’t pay fat dividends: we largely recycle the profits. So it is partly self funded and partly funded by two major banks.’
Wider concerns about the domestic and global economy are not dampening Cullum’s desire for expansion. If anything has had an impact on the sector in which Towergate operates, it’s Chancellor Alistair Darling’s decision to axe taper relief on capital gains tax: ‘[The government will] hit smaller businesspeople, who are going to have an 80 per cent – not eight, 80 – increase in tax. If you are the bigger guys, you’re just going to go offshore.
‘The end result is not going to be an influx of funds into the Treasury; most guys that I know who are entrepreneurs will pay up to ten per cent as they know it’s fair. But 18 per cent? You’ll have tax lawyers all over saying: “If you want to move offshore, I know a nice place in Monaco where we can reconstitute your wealth.”’
While there is constant speculation at Cullum’s personal wealth – often estimated at around £1 billion – he talks with genuine enthusiasm about his own and Towergate’s philanthropic activities. ‘Whatever I’m worth, which is probably far more than I ever deserve, I believe there is an obligation to give something back,’ he says. The Towergate Foundation raised about £1 million last year, which is donated to four charities, and Cullum has a children’s charity that is run by his daughters.
To stay or go
As for the long-term future of Towergate, he doesn’t rule out the possibility of the UK’s most active acquirer being taken over one day, and the speculation about him selling his stake doesn’t go away. The group has been circled by investment banks and private equity houses for over a year now.
He says: ‘It would be daft to say that we would never consider a suitable offer. So in terms of the next 12 months, I see the opportunity for another de-risking event that would take something off the table, but we certainly wouldn’t consider conceding control to a bank or a private equity house.’
For the meantime, he appears genuinely excited about making Towergate bigger and better than the competition: ‘We have too much to do over the next two to three years and it would be a very premature move on my part to effectively agree to a change of ownership in the business right now.’