Towergate: the art of smart buying
Article Date: Jul 12 2006
Cullum’s new venture, Folgate, followed the same path as Towergate – it just consolidated even faster, buying more than 50 brokers in only three years.
In 2005 the two entities were merged as the Towergate Partnership. It became the tenth-largest broker in the UK. ‘If you had said eight years ago that the company would be writing £125 million, it would have been beyond my wildest dreams,’ Cullum admits.
‘We have ploughed everything back to fuel acquisitions,’ says Cullum. ‘We acquire good businesses rather than turnaround situations. Our balance sheet is the people – otherwise it’s dodgy furniture and some IT.’ The fuel that has driven this acquisition machine has changed in composition over time. In 1998 Royal Bank of Scotland gave the nascent company a £12 million loan that was a mixture of debt and equity. ‘Most banks were not disposed to blank-sheet-of-paper companies,’ recalls Cullum, ‘but we had a track record and we liked the people.
‘In 2002 Towergate had developed enough niches and crevices and that was when we moved to start Folgate and buy regional insurance brokers. So we put our plan together and RBS invested a further £20 million. In 2005, we agreed to buy back the RBS equity stake. They will have made a very good return.’ RBS is still very much involved in the growth of Towergate, however. Cullum’s next financing round saw a consortium of banks creating a debt vehicle – a £100 million war chest for further acquisitions. ‘There is no shortage of opportunities,’ he observes.
Very often, acquisition-led strategies can end up just being that: a collection of businesses that do not create greater value than the sum of those parts. Cullum’s market specialisation and speed has built up a considerable enterprise. But the real benefits are now being derived by his focus on how Towergate integrates and develops the people it is absorbing.
‘We have almost become a buyer of first choice,’ he says. ‘If you want to buy good businesses, you have to pay top dollar. The vendors become our new colleagues. They can’t feel that they have been short-changed because otherwise they can become terrorists within the organisation. I would hope that those who have sold to us feel that they have been treated well and fairly. We insist that they retain a small stake, which I think drives them to perform better. Our research sample of one – me – makes me think that.’
Peter Cullum is the Ernst & Young UK Entrepreneur Of The Year 2005. This article was originally published in Masterclass magazine.
