Towergate Insurance (“Towergate”, the “Company” or collectively with its subsidiaries, the “Group”) has today confirmed the sale* of Towergate Financial Group (‘TFG’) to Palatine Private Equity for a price of £8.64 million. The transaction follows a sales process launched in late 2013.
TFG had been long identified as a non-core business for the Group given its different operational and risk profile; the sale could have been completed in early Q4 2014, however it was put on hold due to the consensual restructuring of the Group. No further material disposals are planned following completion of the transaction. Subject to receipt of all necessary consents the Company expects the transaction to complete on or before 20th March 2015.
Scott Egan, Interim CEO of Towergate said: “The sale of TFG is further evidence of a commitment to our core strategic focus, which is to build on our market-leading positions and distribution capabilities in SME insurance and specialist personal lines. The provision of independent financial and mortgage advice sits outside these markets and has now found a more fitting home with Palatine Private Equity. We look forward to an ongoing and mutually beneficial relationship with the business post sale, as a distributor of complementary products and advice. Towergate Group is absolutely focused on the opportunities as we continue to revitalize the Group. This action further illustrates the momentum Towergate has gathered following its proposed restructuring.”
Although Towergate will retain responsibility for any historic regulatory liabilities, these are liabilities the Group already has.
* Towergate Health+ (‘TH+’) which currently reports into Towergate Financial Group will be retained by Towergate Insurance following the transaction and will therefore not form part of the sale.
Rationale for Sale
- TFG has been identified by Towergate as non-core given the different risk, margin and return profiles in the IFA sector as compared to the Group’s core broking sector. TH+ will be retained within the Group since its operations fall within the core scope of the Group’s insurance brokerage activities.
- The decision to explore a sale of TFG significantly pre-dates the consensual restructuring (initial discussions started in late 2013) and is not part of a broader programme of disposals going forward.
- Given the ongoing investigation in relation to past advice provided by the Towergate Financial business on Enhanced Transfer Values (ETV) and Unregulated Collective Investment Schemes (UCIS) it was determined that the Group should seek to de-risk itself from any future potential issues that might arise in this sector. Under the terms of the agreement all risk on all business written post completion of the sale will be removed.
- Towergate has determined that a new owner for the business would be best placed to implement investment in infrastructure, while Towergate can continue to invest in the core areas of its business.
Highlights of the Agreement
- Palatine Private Equity will acquire the entire equity of TF Financial Planning Ltd (TFFP) and TF John Charcol Ltd (TFJC) for a gross consideration of £8.64 million. The net proceeds after adjusting for minority interests and transaction related costs (advisor fees and transition costs) will be £6.4m.
- The gross consideration represents a multiple of 6.64x 2014 EBITDA for TFG.
- TFFP and TFJC are non-regulated companies which were established by Towergate as part of an ongoing programme of internal reorganisation prior to the disposal. TFFP was formed by the transfer of the business, assets and staff of Towergate Financial (Scotland) Ltd, Towergate Financial (East) Ltd, Towergate Financial (West) Ltd, Towergate Financial (North) Ltd and Towergate Financial (London) Ltd and certain parts of Towergate Financial (Group) Ltd by way of a business purchase agreement (BPA). Separately, the trade of John Charcol was transferred to TFJC by way of BPA.
- The transaction structure as outlined above means that post transaction Towergate retains all the existing regulated entities, and therefore retains all responsibility and liability in respect of all financial services products sold by these regulated entities or advice given in respect of such financial services products prior to completion of the transaction. This covers both ETV and UCIS but would also cover any potential future investigations into other product areas sold by TFG prior to the sale to Palatine Private Equity.
- As part of the transaction, a Claims Handling Agreement has been drawn up. This provides Towergate with control over all claims which may arise for historic liabilities and access to the employees and information held by TFFP and TFJC to help in dealing with any potential claims. In addition, a Joint Liaison Group (JLG) has been established whose primary function will be to facilitate the smooth and timely operation of the skilled person review (Section 166 Review) being carried out by BDO LLP in respect of ETV and UCIS and to receive and discuss issues referred by Towergate’s compliance team to the JLG in connection with the Complaints Handling Agreement.
TFG was formed in late 2007. The business offers independent financial planning advice, mortgage broking, and corporate employee benefit and protection advice under the trading names ‘Towergate Financial’ and ‘John Charcol’.* The business employs 340 people based in 12 regional offices with a comprehensive footprint across the UK. The current management team will move across upon completion, led by Warren Page, CEO. The business serves over 40,000 active clients.
Notes to Editors
Launched in 1997, Towergate is the UK’s largest independently owned insurance intermediary, generating more than £3 billion of pro forma gross written premiums across its companies and employing over 5,000 people across more than 100 UK offices.
Towergate is an important distribution channel for a significant range of insurance products and a key strategic partner for the UK’s largest insurers.
Towergate’s scale, customer insight and distribution relationships make it a unique business and a leader in the markets in which it operates. Its combination of distribution and underwriting gives it unparalleled consumer data and market insight.
Towergate operates across five core divisions:
- Insurance Brokers – Towergate Insurance Brokers distributes specialised personal lines and products, and more general products aimed at SMEs through around 90 broking offices located across the United Kingdom
- Underwriting – Towergate’s underwriting division is the UK’s largest MGA, providing specialist insurance products for brokers, without taking the ultimate capital risk. The MGA has over £750 million GWP under management
- Direct – Towergate Direct sells specialist Personal Lines and SME products primarily through telephony and digital distribution channels
- Paymentshield – Paymentshield is the leading provider of insurance products to mortgage brokers
- Network – Broker Network represents the largest Network for insurance brokers in the UK. The brand remains the leading proposition in the market in terms of size and breadth of service with 600 Members