Gallagher International's recent takeover tactics are a wake-up call to the market – but is it brewing up trouble for David Ross?
Gallagher International’s push into the UK retail market is certainly attracting attention. Its £97m acquisition of Heath Lambert has given the London market broker a springboard into the regions and puts it in direct competition with established players such as Towergate, Oval, Bluefin and Giles.
The US-owned company is not out to win friends. Gallagher International chief executive David Ross has set the tone with a no-nonsense approach, this week raiding Towergate for up to a dozen staff.
Rising to the challenge
The Heath deal proved he was not afraid of a challenge. He has taken on a business with a history of financial woes, as well as one of the market's toughest characters, chief executive Adrian Colosso.
Now his attention has turned to a new beast: Towergate. Just days after the champagne corks were popping at Towergate's Maidstone headquarters following the shock appointment of former Aviva UK chief executive Mark Hodges to its top spot, Gallagher made its move.
News emerged on insurancetimes.co.uk that two managing directors of key businesses with Towergate Underwriting were on their way to Gallagher. Simon Read and Scott Banks, head of commercial underwriting and homeowners respectively, are joining Gallagher and it is believed that up to 10 staff could be following.
The raid has been described as a big loss to Towergate and couldn't have come at a worse time for underwriting chief executive Clive Nathan – who is believed to be one of a trio of internal Towergate candidates to miss out on the top job to Hodges. He now has a major repair job on his hands.
Gallagher is sending a wake-up call to the market. Ross is installing a London market philosophy into the retail market, where highly paid teams regularly move from broker to broker.
In the regions where Gallagher is competing, although team moves do take place, the focus generally falls on acquisition. “It’s an interesting play, the most dynamic play we’ve seen in the retail space probably since AXA put together Bluefin,” said a broker source.
Pros and cons
So how will this work out for Gallagher? On the one hand, it could be applauded for identifying high-quality teams to load up its growing MGA business, which it will operate alongside its broking business. It acquired Woodbrook Underwriting earlier this year and is likely to channel Heath business through it.
On the other hand, these moves could come back to bite the firm. When taking teams, there are generally two issues to be wary of. The first is that if a team is ready to move, there is always the possibility they will move away again. The second is that there is every chance the former employer could take a team back.
A senior market source questioned the timing of Gallagher’s move. “Particularly with Heath being such a recent acquisition, it’s a bold move to make enemies in the market because you could assume that some of those Heath staff would be a bit jittery,” the source said.
“If David is going out there and dragging teams from various brokers, there is a chance that others might be able to take advantage of Heath’s nervousness and take teams from it. It’s a dangerous game unless you come to an agreement with those you take the team from.”
Where will it stop?
Market sources do not expect Ross to stop at Towergate. He is adding underwriters to the MGA business but is also likely to be on the look-out for high-quality staff to bring business into it. Where will this take him? The entire retail insurance market will be on their guard.
One source has highlighted the danger of this type of activity becoming the accepted behaviour in the retail market. “Whereas before, people would buy business, now they will nick them.”
Keep a close eye on Gallagher for the rest of the year.