COBRA chief executive Steve Burrows tells M&A why acquiring a company is only one part of the deal, writes Morag Dickson

Retail and wholesale insurance broking group COBRA Holdings is firmly on the acquisition trail, landing four new businesses at the beginning of April for a combined total of £6.3 million, lifting the firm’s number of buy-outs to 12 since its formation in 2006.

COBRA chief executive Steve Burrows says: “The biggest problem with acquiring a company, especially in our industry, is managing the post-acquisition integration process. It’s easy to acquire and amalgamate the business, but creating the synergy savings is where it’s at if you are to distinguish yourself in this marketplace.”

The April purchases are comprised of three insurance broking entities, Giles (£8 million in Gross Written Premium (GWP)), JK Lee (£4 million GWP), GDK Insurance Services (GDK) and an underwriting agency, County Insurance Services Schemes (CISS) (£4.5 GWP).

Cobra Holdings has seen turnover for the most recent year-end rise by 68 per cent to £15.1 million. Pre-tax profits increased by 28 per cent to £885,000. All was achieved notwithstanding an £800,000 reduction in profit share due to last summer’s flash floods.

Burrows notes that the purchases aren’t “simply a move to benefit ourselves from a revenue perspective.” He says: “Insurance companies like it too. It stands to reason that insurers will question why they should pay COBRA more commission if all they are paying for is scale.

“So the concept of creating synergies that work for an integration model rather than an acquisition model has fast become a touchstone.”

Two individuals are charged with bringing the fresh additions into line: acquisition managing director Mark Zandler and integration managing director Phil Truman. “They work concurrently once the businesses have started to be bought and then through the whole procedure. They remain involved through the consideration which is normally 27 months.”

Financially, Burrows says it’s important to keep people motivated: “A lot of them realise that we’ve got to create more value out of their business but some can be adverse to change, which is only natural. It takes a bit of time.”

During an earn-out period, bonuses are put in place. “If you didn’t incentivise the team and paid £3 million up front and hoped the business worked, it probably wouldn’t. Their lifestyles would’ve changed and there would be no pressure on them. If you can keep a reasonable amount of pressure on them during the pay-off period then there’s a common goal.”

In fact, bedding-in the newly-acquired companies is Burrows’ greatest challenge, while keeping an eye on fresh targets: “The risk this year is not consolidating what we’ve got effectively enough. We need to bolster ourselves in preparation for a new era in broker consolidation, signalled by Towergate’s acquisition of Broker Network late last year.”

Consolidation in the industry is running at 10 per cent a year and the number of independent brokers that constitute a geographical and/or category match are dwindling. The dawn of the super-consolidators began early last year with AXA’s purchases of Stuart Alexander, Layton Blackham and Smart & Cook. Towergate followed suit by placing a recommended cash offer of £95 million for Broker Network in November, a deal that since completed for undisclosed terms.

With this in mind, COBRA’s weapon could be the addition of Giles, which prior to becoming part of Burrows’ business, secured a £500 million acquisition war chest from private equity investor Charterhouse and was reported to have been considering bids for Oval and Jelf.

“We need to repeat the multiples we achieved in 2007,” reflects Burrows. “We’re looking to buy eight brokers in total and continue our growth and integration strategy, while also getting the best out of what we’ve got.”

INTEGRATION at a glance

• Drafting of pre-acquisition synergy paper

• Meeting of directors

(immediately post signing)

• Staff meeting

(within one to two weeks of completion)

• Review process

comprising one-to-one interviews with new staff conducted by

Paul Bryant, HO director at

COBRA Resource Management

• Three-month lead-in period

• Systems alignment

(first 12 months post acquisition)

• Companies synergise

(year two)

• Drafting and implementation of business development plan

(at 27 months)