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Insider in Full: Howden-Tiger: The risks of empire building

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Topics: Mergers & Acquisitions Strategy

It wasn’t exactly a surprise when Howden announced on Thursday that it had struck a deal to acquire TigerRisk...

We broke the news that the two businesses were in bilateral talks as far back as 18 May, and telegraphed the ballpark sale price and then the signing as well.

There was lots of propaganda on show post-deal, with some of the most fawning nonsense I have ever seen written about the sector. Careful you don’t get scorched by the renowned steely gaze of the combined Howden Tiger management team.

Let’s get a few things out of the way to give due to the very real positives here (much of which Rachel Dalton said here after our initial scoop).

This is a great deal for TigerRisk’s slim majority private equity owner Flexpoint Ford. The PE firm exits for cash with close to 4x its equity in two years. It’s a home-run investment.

In addition, this provides a long-term answer to the ownership question at TigerRisk, sparing it the vicissitudes of the public markets, and freeing it from the private equity merry-go-round. It transfers ownership to a high-quality, entrepreneurial firm and connects it to international retail distribution.

And it crystallises a tonne of wealth, with the Tigers cashing out around 50% of their stakes post-tax. Rod Fox becomes as rich as Croesus with his ~20% stake, and joins probably the second tier of insurance industry entrepreneurs for realised wealth creation – those who have made hundreds of millions through the businesses they built.

He is a long way behind Pat Ryan, Hank Greenberg and Bill Berkley, all of whom became billionaires through their entrepreneurial efforts in the sector.

But he joins the next tier which includes specialty market names such as John Charman, Richard Brindle, David Ross and Grahame Chilton – and then a string of private US broker CEOs such as John Hahn, Steve DeCarlo, Thomas Corbett and Jim Hays, to name a few.  


TigerRisk has been an incredible success story, building from zero in 2008 in an incredibly uncongenial environment against the Big Three brokers. David Howden said the team had done it “against all the odds” and he’s right. This time, Fox can find no cause to burn the trophies of his team.

And from Howden’s perspective, this gives it a reasonably scaled position in a key marketplace, accessed via a deal that had the ultimate in scarcity value. Had Tiger sold to a rival or recycled into PE, there was no alternative deal – Howden would have had to achieve its ambitions through an organic build.


Reinsurance broking is a great business, offering high margins, and spillover positive effects into the other parts of the group – as well as allowing it to secure additional benefit from its retail arm by exerting leverage. Catapulting itself to fourth in the sub-sector is a win for Howden, and provides a nice platform for further growth.

Dialling up risk

Setting to one side the positives, and as a corrective to the nonsense being written elsewhere, there are important qualifications to all this.

Howden has now agreed four mega deals in 21 months with an aggregate consideration of $4.8bn, having previously waited six years after its first multi-hundred-million-dollar deal, RK Harrison. 

M&A has been a winning strategy for almost every broking group that has pursued it over the last few decades, but serial deal-making at this kind of scale creates risk. And that shouldn’t be missed amid all the backslapping.

Stepping back from this recent surge of deal activity, CEO David Howden has built a reputation over 25 years as a credible, entrepreneurial leader. He has led an organisation since inception in the mid-1990s that has been able to deliver organic growth due to its energetic culture, even as it has wracked up M&A. This is an incredibly virtuous circle if you can do it – almost a magic trick.

He has also taken some smart strategic calls with the business. He sought to build an international specialty retail network long before any of his competitors tried to do it – and so he had a relatively clear field (it is now becoming crowded). He also moved into MGAs incredibly early, in the 1990s, and committed to building out a scaled platform, with Dual now around $2.5bn of premiums.

The executive has also financed the business intelligently, finding ways to keep upwards of 30% of the common equity in the hands of staff, with a broad spread of staff owners, while finding a spread of long-term institutional capital willing to participate as minority backers.

The missteps

But Howden has made some missteps too.

If he wanted to move in a bigger way into UK retail – where the firm had presence for a long time – waiting until multiples had broadly doubled between 2010 and 2020 was a big misstep. Howden could have built an early dominant position at a much lower multiple than it spent, rather than ceding the M&A field to Ardonagh, PIB and GRP.

You can make the same argument around the US MGA market, where Howden ultimately found a good asset in Kieran Sweeney’s Align. But finding a way to clinch Distinguished when talks were held a few years ago, or managing to winkle out a different deal, would have allowed it to catch the crest of the MGA boom rather than buying a peak multiple business.

In essence, the missteps look primarily to be questions of timing and valuation. And all the recent deal spree is vulnerable to these criticisms.

Essentially, Howden has opened itself up to the risk of value destruction from overpaying. It is risky to make huge outlays, massively dwarfing all combined prior M&A spending, at a point where multiples are at record highs.

The current feverish M&A cycle has been driven by cheap debt, structural growth in private equity and a brokerage super cycle.

A lot of those tailwinds could be set to reverse. Shares in public broking firms are down 12%-24% from April peaks, as the Fed pushes interest rates higher to tame inflation. This has created a high chance of recession, with fears of a sluggish recovery – something which could overlap with a softer phase of the P&C pricing cycle.  

It seems very clear that franchise- or empire-building (depending on your perspective) is the group’s primary objective, not an attempt to maximise short-to-medium-term shareholder returns.

But assembling a business at peak multiples sets the bar very high on growth, and ultimately General Atlantic, CDPQ and Hg are not financing the business because they want to create an alternative to the Big Three for clients. They will ultimately want to cash out with big returns.

More typical private-equity-backed names are looking askance at the prices of these deals. But there are, of course, entrepreneurs who have created incredible value and wealth in this way.

His competitors for years cast aspersions on Pat Ryan’s M&A build for Ryan Specialty (“he’s overpaying”, “what is he doing paying these multiples?”). Then the business went public and easily traded above 20x Ebitda. In the end, it worked both from a franchise-build and shareholder-returns perspective.

But to do it you have to excel at growth and efficiency, and you may also need some help from favourable financial markets. By doing big deals at full multiples, you set the bar high for yourself.

Setting the risk of dilution of equity returns to one side, there are three key risks that arise from this kind of mega M&A strategy.

First, by adding 3,000+ staff via the four deals to a headcount that was around 7,000 before A-Plan, at the same time as a surge in hiring, Howden risks dilution of its culture.

All businesses these days talk about culture as a differentiator. Howden seems to have a credible claim to having built a genuinely differentiated one which has allowed it to sustain significantly above-market organic growth.

How do you add this much new headcount and sustain that culture? Has the work to bring the Align staff into the Dual and Howden way of doing things really been done? What about Aston Lark’s headcount of well over 1,000?

And what does it mean to be a staff member in the significantly enlarged group? Is my first identity as a Howdenite? Or do I work for Aston Lark, a Howden company? TigerRisk isn’t short of a culture all its own. How does that fit into the Howden mould?

Second, by growing so rapidly through M&A, Howden is taking on additional complexity risk, which will make it harder to execute effectively.

Howden hasn’t been a simple business for a long time. But adding in another ~$5bn of businesses brings exponentially greater challenges around maintaining standards, management oversight and information flows. Operational excellence becomes a requirement.

Large, complex, heavily diversified groups can also be unwieldy – and potentially ultimately bureaucratic.

Dual itself perfectly illustrated the challenges of scale in 2015-16 when it ran into real problems, and was unable to get performance data as agreed, requiring the infrastructure to be totally overhauled.

In an interview late last week, Howden acknowledged the parallel with the wave of deals Aon did in the 1990s into the 2000s. But Aon was beset by operational challenges following the deals, and did not truly put the integration behind it until the early-to-mid 2010s when it began its remarkable run of margin expansion.

Howden has an excellent record of retaining entrepreneurial talent from acquired businesses, but the more of this talent you have in the upper echelons of the firm, the greater the chance some of it will either power down, or decide to retire, and then subsequently unretire.

Moreover, if you are permanently integrating massive acquisitions, your attention is permanently split as a management team.

Third, if you move fast enough and are looking hard for mega deals, you increase the risk that you get one wrong and buy a turkey.

Typically moving at a deliberate pace, conducting exacting due diligence, maintaining a low hit rate and leaving significant time between major transactions are predictors of success.

If you do misstep, then you have wasted time, effort and shareholders’ money. And you also need to find a new toolkit for a successful business – the turnaround.

A-Plan, Align and TigerRisk are all established franchises that reference well with competitors, advisors and other sources. They are good prices for the sellers, but good businesses too for the buyer.

Aston Lark does not reference in the same way, with competitors and advisors surprised Howden was willing to pay up a premium multiple for a business largely built over the three to five years preceding the deal, with a surge of dealmaking under the ownership of Goldman Sachs.

The next deal

With a fresh enterprise value of $13bn, upwards of 30% of common equity in the hands of staff shareholders, Howden has been a remarkable success story to date.

It may well continue to be. Typically, businesses that outperform in the sector continue to outperform.

But this glut of deals has materially elevated its risk profile. And Howden isn’t done yet. He told us he thinks there will be more mega deals to do in Europe, where sizeable platforms are going to become available this year.


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