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Buying a Business for the Long Term

Buying a Business for the Long Term

 

CLEAR’s CEO Howard Lickens recently wrote an article for Post Online in which he discussed his views on buying a business for the long term, and here they are:

"If you were a shopkeeper, how well disposed would you feel towards the person who came in every day and tried to beat you down on your prices? Or if your boss concerned himself with lining his pockets and never gave a thought to your wages or wellbeing, how loyal would you be?

I ask these questions because they bear directly on the pressures being felt in the broker market as a result of the current wave of broker consolidation. It seems to me that far too often the consolidators are interested in rewarding themselves, their investors and shareholders, without much thought for the other stakeholders in the business. The financial engineering that they impose amounts only to a reallocation of finite funds. The losers in this carve-up are the employees, the suppliers and the customer.

Higher commissions, poorer customer service and high staff turnover have long been the hallmarks of this short-termist approach. And what I find particularly depressing is that we've been here before and we've learned nothing. The last wave of consolidation 10 years ago promised economies of scale that would benefit the customer... and we all know what happened.

Since then, there has been a lot of talk about sustainability and customer loyalty. Other models have emerged to allow brokers to design more successful and satisfying succession strategies in which the acquirer is serious about sustainability. And sustainability means involving and benefiting all stakeholders - good news for customers, for insurers and all those who work in the business.

If that sounds a little utopian or even mildly socialist, let me assure you that we at Clear are serious acquirers of businesses. We expect a good return on our investment and to grow profitably. In the past few years, we have made more than 20 acquisitions - some have been exceptional, some just OK and none of them a quick fix. That's because the model is about culture rather than pure financials.

This does not mean the businesses we acquire and the people who join us have to be clones of ours but the grain has to run the same way. So an informal, collaborative business with open-plan offices and a ‘wear what's appropriate' dress code would be unwise to acquire a traditional, top-down brokerage, steeped in the tradition of pecking order and private offices where ‘my door is (almost) always open'. If the outlook of the business you are targeting is similar to yours, it is self-evidently much easier to respect their values. We, for instance, love it when the previous owners stay on as they can contribute greatly to the future success of our business.

This approach helps to ensure that we attract and retain the type of customers who want a long-term relationship. Our position in the market is clearly defined as targeting customers who want advice, consistency and someone to rely on when it comes to a major claim. And, of course, there should be a reward for customer loyalty and good risk management.

In the short term, all of this may mean that margins are not quite as good as those of the more ruthless private equity-funded models. But by building a strategic partnership with insurers, which allows them to make money too, you earn respect and support over the long term. As one insurer said to me, "we value brokers who use our capital with care".

So, in the quest for building a sustainable business, keeping the interests of all your stakeholders aligned is key and focusing on profitability and the customer are the central pillars. But in my view, there is a third pillar and that's having good values or "doing the right thing". I don't have to tell our staff what that means; they do it instinctively."

 

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