One for the road

For veteran deal maker Neil Utley, the sale of his Equity Insurance Group was the denouement of a saga that see-sawed between failure and ultimate success.

Neil Utley is the kind of risk taker who eschews the limelight but through dint of hard work finds himself squarely in it.

With the recent sale of his Equity Insurance Group (EIG) to Insurance Australia Group (IAG) for £576 million, his reputation as a highly successful operator has already done the rounds in the financial press.

But with the media focused more on cash windfalls and Utley’s personal bank balance after the completion of the deal, less column inches have been written about his travails that helped make the deal succeed.

Nevertheless, it was only through sheer steely determination that the soft-spoken Yorkshireman managed to emerge on top and barely unscathed after what he terms a rollercoaster ride trying to secure the company before selling it to IAG. Indeed, the IAG deal came just 18 months after he de-listed EIG (formerly Cox) in a management buy-out, and that came just two years after he was sacked by the board for attempting the buy-out in the first place.

Utley joined Cox Insurance in 1998 and oversaw the transformation of the Lloyd’s underwriter from a small retail insurer with pre-tax profits of £7.5 million to its rebranding as Equity, with £50 million profit after tax in December 2005. As chief executive of the publicly listed firm, Utley was the driver of Cox’s build-and-buy strategy, adding different divisions in the retail and commercial insurance sector.

Despite his best intentions, the group was hit hard in late 2001 when the underwriting business was crippled by claims following the 9/11 attacks in New York. Utley spent the next few months restructuring much of the business and shedding the less profitable elements of the group. Despite the problems with the commercial underwriting side, the personal insurance lines franchise remained robust and profitable. It was at this point that he drew up plans to bid for the company.

Forced exit

By late 2002, Utley put together a consortium for a buy-out of Cox, which then had a market capitalisation of some £200 million. The board rejected it out of hand and Utley was sacked after disagreeing over future business strategy, part of which meant taking Cox private.

“Yes, I was fired,” he says. “I put an offer in that was backed by HBoS and as CEO of the company I had to step to one side to put my bid in. But, inevitably, it put me at odds with some of the shareholders, who wanted different things for the business. I left in June 2004 and effectively it took a year from leaving the business to coming back and buying it.”

The 12 months out of the business were trying times for Utley, who admits that he had to do a lot of soul searching.

“The time you’re outside looking at buying it is a rollercoaster; I had to raise a lot of money,” Utley recalls. “You’re on your own. Your advisers are on contingency fees, you haven’t got revenue coming in and other people are offering you something.”

“All the time you’re having to test yourself, you’re thinking: ‘Is this the right thing to do, you’re taking some big family risks. Will it come off?’ I was quite well known in the industry and a lot of people wanted me to do things for other businesses, so it was tempting just to walk away.”

Adding to his personal anxieties, Utley’s interest in the insurer had attracted attention from other predators in the industry. With Cox generating revenues of £325.2 million in 2004, along with net profits of £20.8 million for the year, the insurer was an attractive target for other industry players. For Utley, the die was cast and he had to act if his ambitions were to be realised.

He finally completed the leveraged buy-out of Cox in June 2005 for £425 million, including £130 million of debt. The deal was backed by venture capital investors Duke Street Capital and Englefield Capital, which each owned 40% of the company.

“We spent the year mapping out what our strategy would be on buying the business,” Utley recalls. “From the day of walking back in it was a case of dealing with everything from speeding up acquisitions, bringing in new people and rebranding the business. At the same time we had to make sure we didn’t deviate from the focus of underwriting.”

The deal represented a new era for Cox as well as the company’s new chief executive. Utley subsequently took the insurer private in one of the largest public-to-privates under the Lloyd’s banner and renamed it Equity Insurance Group. While Cox Insurance Brokers became Equity Insurance Brokers, the underwriting business remained Equity Red Star.

It was the ongoing success of this latter motor insurance product that made Utley rebrand his company around the “Equity” name. With the rebranding, he also re-built the management team to help drive the business forward under a new structure.

Utley admits that taking Cox private and renaming it was essential for the success of the business. As a publicly listed insurer it lacked size when competing against other big industry players. “Cox was a public company and we took it private because it was too small. This helped us to reinvest in the business and effectively reinvent it.”

In the year and a half up to the deal with IAG, Utley spent about £4 million on bolt-on acquisitions and also signed a series of affinity deals, which provided white-labelled motor insurance to the customers of household names such as First Direct and Renault. Unsurprisingly, the company became an attractive proposition for any larger player targeting the UK insurance market.

Enter IAG

Small wonder that just 18 months after the Cox deal, Utley was approached by Sydney-based IAG looking to take a slice of the UK market. Acquiring EIG, the largest motor insurance syndicate at Lloyd’s, would be key to increasing IAG’s exposure in Europe.

With a market capitalisation of A$9 billion (£3.5 billion) and annual gross written premiums of some A$6 billion (£2.4 billion), IAG is the largest insurer in Australia and New Zealand.

In the past year alone, IAG had been busy on the acquisition trail. On March 10, 2006, it acquired a 30% stake in Kuala Lumpur-based AmAssurance. This was followed three months later by the acquisition of Lloyd's managing agent and specialist Asian syndicate, Alba Group. Marking its entry into the UK insurance market, IAG then acquired Hastings Insurance Services and Advantage Insurance Company, two UK insurers that specialise in motor insurance. The EIG deal was an ideal fit, but Utley admits the timing took him and his investors by surprise.

Utley: “We’d known IAG for a while and they made an approach to us in late summer. Along with our private equity backers, we thought a deal would be further down the track, but you can never predict the timing of events.

“They have 50% market share of motor insurance and 35% market share of households in Australia, so they’re largest retail insurer in Australia. They’d reached their ceiling and wanted to expand internationally.”

After some informal meetings with IAG’s chief executive, Michael Hawker, Utley realised that both firms shared the same business ideals and that a deal could be on the table for them.

Utley: “We’d been chatting in June/July, but not with any serious intent until October. Then we started working on it properly. We had a lot in common. I spent a lot of time sharing our plans at a high level, he did the same. I then spoke to our shareholders and told them these guys had made a serious approach and we should put something together.”

The deal was eventually signed last December to much fanfare in the press and insurance industry. For EIG private investors Duke Street Capital and Englefield Capital, the deal generated an estimated capital gain of £190 million on an initial investment of £155 million – although both companies had originally calculated an exit strategy of some three-five years.

Utley: “They never planned for a quick exit. They were supportive with what I wanted to do, but they would also have been supportive for me to carry on for three-four years. It wasn’t them rushing for the exit, it was me saying ‘this deal meets your returns’. At the same time, it’s right for the company and the management.”

It was also a lucrative deal for some 80 individual shareholders – including Utley himself – who stood to gain a share of £40 million generated by the sale.

Utley: “The FT said it was one of the most successful MBOs in recent times. That’s very positive. We’re in an industry where there are many rumours and we didn’t announce anything until the day the deal was signed. That certainly took everyone by surprise. That’s a challenge when you have so many people working on the deal from different areas in the world. Keeping it out of the press was challenging. We did it all behind the scenes while getting on with the job.”

As part of the deal, Utley has signed a three-year contract to stay in charge and believes the new ownership gives EIG the security to pursue its acquisition strategy and hopes to sign several deals this year – although he remains tight lipped about the details.

Regardless of the success of the IAG deal and his hard work during the preceding years, Utley is modest about his achievements and laughs at what he sees as press reports about his relentless entrepreneurialism. By his own admission, Utley is simply a businessman who intends to do the job properly, for his company and his staff.

Utley: “We just happen to be in the insurance business. But my skill tends to be more about working with people and businesses. It’s about being a manager and being commercial. There’s a shortage of common sense and being streetwise. I’ve got a good people around me and encourage them to be like that.”

“The insurance industry has a Young Achiever of the Year Award and I’ve had four people from Equity win that in the past five years. That’s pretty special. People under 30 years old running businesses. It’s unusual to have that much talent and that’s exciting. That’s why I do what I do.”