Those potential buyers of Miller – Tysers and private equity house Cinven, as we revealed yesterday – present two very distinct futures for the London wholesale broker.
Final offers from the bidders are due in around 10 days’ time, pointing to an end to the process by perhaps mid-November.
The prevailing wisdom in the marketplace is that Tysers will win the contest for the simple reason that as a PE-backed platform, it can price in substantial synergies and bid more.
Strategically, the acquisition is also judged important to Tysers as the capstone of a London market roll-up strategy that is central to the firm’s value creation.
The strategy can be traced back to 2018 when Integro acquired Tysers (assuming its brand for trading purposes), ahead of a move from backer Odyssey Investment Partners to sell the US operations and focus on the UK.
After putting together Integro’s existing UK operations and Tysers, it reached for even greater scale by acquiring RFIB in September 2019.
If Tysers can seal the Miller deal, it will unlock significant additional synergies, likely achieve efficiencies around its debt financing and bring in a different stratum of PE house on exit by offering up a platform that could have ballpark £100mn of Ebitda.
All of which explains the received market wisdom.
But there are three reasons why it is far from inconceivable that once the dust settles, Miller will be owned by Cinven and management.
First, most of the assumption that Tysers will outbid Cinven rests on an unexamined assumption that the two bidders have the same return hurdles.
This may not necessarily be true. Sources told this publication that Cinven would invest in Miller via a new $1.8bn dedicated financial services fund, for which it has been fundraising this autumn.
The fund, which will be run by former Centerbridge Partners dealmaker Luigi Sbrozzi, is understood to be in the style of a “tactical opportunities” vehicle. These invest for longer time horizons than most private equity funds and crucially target returns in the region of 12%-15% rather than the typical 20%.
Second, there are the personnel issues that are often the critical but unseen feature of M&A deals.
And here, Miller’s management seems highly likely to prefer an investment from a private equity house with no existing platform, than the loss of control that comes with a potentially messy merger.
Greg Collins and Miller’s management team have the ultimate leverage of being able to walk away, but the initial deal with Willis also gave them a range of shareholder protections as significant minority owners – including the change of control clause triggered on the Aon deal that sparked this whole process.
Third, Willis has an unusual degree of flexibility as a vendor, which could lead to a management-friendly solution.
Its own impending combination with Aon means that its value has effectively already been fixed, with the outcome of the Miller sale irrelevant to the sale consideration from Aon.
Although achieving a deal agreeable to Aon will be a consideration, Willis is not necessarily as driven to secure the highest price possible for Miller as might be the case if it were contemplating a future as an independent public company.
As such, it is easy to see a scenario in which the business would be sold to Cinven. What is more challenging is to understand the rationale on Cinven’s side.
This is not to criticise Miller, which is a high-quality business and a blue blood London firm, with great talent and a highly loyal client base.
It is simply to say that Miller does not have the characteristics of an obvious PE target. As a quality business, it is not a restructure opportunity. And it also is not an obvious candidate for meteoric growth given its growth profile as a mature business and its modest track record on M&A.
Instead it would be more suited to life as a partnership – which is what it was, of course, before the Willis deal.
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