Insurance Brokers – how proposed changes in Entrepreneurs’ Relief could affect the value you realise from your business
Whether it was the nationals sweeping up smaller concerns, or in-house consolidation as globals streamlined a number of brands within their portfolio, 2019 was another interesting year on the M&A front for the UK insurance broking market.
With persistent rumours regarding a “mega-merger” between two of the biggest global names, and the war chests of the consolidators showing no sign of running empty anytime soon, I cannot see any change of pace in M&A activity in 2020.
As you’d expect, I have longstanding engagements with all the ‘usual suspects’ that have well-publicised appetites for acquisitions, but I am being increasingly asked by smaller, independent brokers who are considering making complimentary, strategic acquisitions too.
A Waiting Game?
With M&A market appetite showing no sign of waning, and rumours regarding increasingly generous terms, now is clearly a good time to consider realising the value in your business.
Market confidence is up, and regardless of what you make of him or ‘it’, Boris’ Johnson’s overwhelming Commons majority, and our departure from Europe last Friday, has at least given us a degree of economic certainty.
I do appreciate that the decision to sell, or not, is a massive one. For most Broker Principals, their business is their life’s work; they want to be sure that they are achieving the best possible terms and that longstanding clients and colleagues are going to be well-looked-after, post-sale.
Broker Principals - you may well be thinking “why not hang fire?” Give it a couple of years and see what this brave new post-Brexit world brings, and then start the beauty parade of potential suitors. I fully appreciate that it is not a decision to be taken lightly.
But a new downside of not acting now is potentially looming around the corner - in the shape of the Chancellor of the Exchequer!
It has been widely reported that Chancellor, Sajid Javid is considering the scrapping of Entrepreneur’s relief; the extremely valuable tax concession that allows founders and investors in small businesses to pay Capital Gains Tax at a reduced rate. Under the current regime, you will only be charged 10% CGT up to a lifetime allowance of £10M.
Entrepreneur’s Relief is said to cost the Government £2.4Bn annually, and Prime Minister, Boris Johnson is said to have referred to it as “serving to only make the staggeringly rich even wealthier.” The view that Entrepreneur’s Relief is a tax break enjoyed solely by ‘fat cats’ may be widespread, and generate headlines, but the vast majority of claimants are proprietors of smaller, owner-managed businesses who have worked for a lifetime to create a saleable business, and factored only paying 10% CGT into their retirement plans.
Clearly, it is unlikely that you will sell your brokerage prior to the forthcoming budget (scheduled for March ‘20), but there is no guarantee that Entrepreneur’s Relief will be curtailed with immediate effect. It could well be tapered over a number of years, so if you are considering selling your business over the coming years, it could be advisable to explore your options, sooner rather than later.
I have spoken to hundreds of people from across the whole of the Professions about M&A over the last 12 months. Whether they’ve been Accountants or Lawyers, or Insurance Brokers that are minded to acquire or dispose of a firm, the advice has been consistent. Many have commented that that the sale of any business is a “veritable minefield” and that “changes in entrepreneurs’ relief could have a massive effect on a Director’s retirement planning.” As such, I would encourage any interested parties to take professional advice ASAP. Lucy Holroyd of Schofield Sweeney agrees, urging “anyone who has thought of selling their business in light of potential changes to Entrepreneurs’ relief to make contact, should they need any legal advice about the process.”
I’m working with a wide variety of firms that are seeking to acquire well-run brokerages of all sizes, from ‘general practitioner’ concerns through to those whose portfolios are more biased towards certain lines of business and industry sectors. My clients are based across the UK and include regional brokers seeking to branch out into new territories, independent firms who are considering making their first acquisition, and smaller brokers who are receptive to a complimentary merger to give both parties scale in an increasingly competitive market.
In my experience, a slower burn often leads to a smoother transaction, and even if you are not looking to dispose of your brokerage for several years, it is perhaps best to start dialogue with one or two acquisitional firms now to get a feel for your options. If you would like to discuss your plans for the future and find out more about some of the less-publicised ways to realise the value in your brokerage, then please do get in touch in confidence.