CBG Group Share Discussion Threads

[bigman] 12/10/2007 16:24

Looking back at the deal nearly two years ago it looks one smart deal to me getting an insurance broking business with net assets of £250k profits of £150k and Premium of £10m and seeing what is being paid by axa and groupama for Lark and carol nash etc ( see the BNH thread) that business would be worth at least £4m ( and that is heavily discounted) if it was for sale today. so you could say your porsche man has lost at least £2m. and we got all the benefits as shareholders and record profits every period since and a tripling of the share price bring them on i say
fill your boots with insurance shares there is only one way they are going jelf, broker network, highway, etc the big boys are coming to town to mop them all up IMHO and if they dont who cares the only way is up.

[manfrompru] 12/10/2007 09:58

Bigman,

Not saying it was a bad deal, just stating that it wasn't as cheap as it might appear. I suppose that when word gets round that a company is on the acquisition trail, it is inevitable that prices may become inflated.

But it is clear that CB are looking to increase their market share by acquisition and appear to have the ability to absorb new business, then build on it.

The "other points" in my post were simply (as I understand it)that the FS business included in the acquisition had effectively had its licence to write new business wihdrawn by the FSA due to its parlous financial state and inability to honour its commitments. I would have thought that such an imporant factor should have been included in the RNS had it been known (and it should have been known).

The vendor must have thought all his birthdays had come at once. One minute facing potential loss of his business, the next.... someone has paid off half a million of his debt, given him £1.2 million (now worth £2million), a main board job in a PLC worth £70k pa and I hear he is buzzing around town in a brand new Porsche....nice!

At least it proves he can cut a good deal for himself, let's hope he continues to do so for his new employers!

[bigman] 12/10/2007 09:09

YAHOO Broker network BNH announce approach shares up over 8% this morning after a great run up-you just cant have enough insurance in your portfolio- will cb. be next- certainly will wake a few investors up to the fact- you cant have enough insurance in your portfolio

[bigman] 11/10/2007 21:42

Well manfrompru I am even more impressed by the performance of this team as you seem to indicate the deal they did in Feb 06 was not a good one and since then we have had 06 half year results record highs acroos the board full year results 06 record highs at every level and yett again at half year 07 record results so all in all i think it was a good deal as the results show that. we have seen the share pricegrowth of nearly 300% since then as well. not sure about what you other points are about but as you are manfrompru i guess it is an insurance thing. you just cant have enough insurance in your portfolio and cb. is quality the numbers they deliver confirm that IMHO

[manfrompru] 10/10/2007 13:13

I hope you're right Geo, but just been looking into one of the recent acquisitions and on the face of it, a price of $1.192 million for two businesses with a joint turnover of £1.569 million may sound reasonable, but when you consider that Swinburne James only made profit of £150K and the associated FS company actually made a loss of £181K, plus we took on an extra debt of almost half a million, it doesn't look quite as rosy.

Also, very surprised that in the announcement of the acquisition in March 2006, there was no mention that SJFS had an outstanding order from the FSA to cancel their Part IV Permission. This was a result of SJFS not maintaining their thresholds and being deemed by the FSA as "not a fit and proper person"!

I assume they were aware of this at the time and took the notice into account when making the vendor a main board member?

Having said all that, the business apppears to be growing from strength to strength and there is no sign of anything slowing down the expansion.

[geovest] 10/10/2007 10:46

Gac - the main purpose of deferred consideration should be to provide incentive to ensure continued profit growth and smooth integration. The problem with some acquisitions is that the deferred comp is used to "reduce risk" because management did not do adequate due diligence in the first instance, and end up giving away too much of future profits as deferred comp. Not the case here though as I've said I trust CBG management.

Just to clarify, the reason why I said the Marcus Hearn acquisition is more risky has nothing at all to do with the deferred comp. CBG up to now has been a Manchester based provincial broking group. Marcus Hearn is a London based broker that also packages insurance products for re-sale through other brokers. This is an entirely new area and sets them up for competition with other London based groups. That adds risk, but at the same time creates opportunity as well and I guess thats why they paid such a full price.

Time will tell, but CBG management certainly deserves the benefit of doubt as I've said before.

[gac100] 10/10/2007 08:34

Geovest, you say "(small deposit, big baloon payment doesn't make it a better deal)"

I disagree with that. The advantages of an earn-out to the buyer are well known. The main one I'd say in terms of the discussion we're having here is: Less risk of paying too much for the company. Proportion of deferred payment goes up; risk comes down. You've suggested that "the risks are slightly higher" for the acquisition of Marcus Hearn compared to previous acquisitions based on multiple paid for turnover. My calculations based on initial consideration show that there is a proportionately lower earn-out component compared to previous acquisitions. It tends to support your view that the risks are slightly higher.

However, its largely academic as we both believe that management will make the acquisition work.

[geovest] 09/10/2007 14:47

gac, I left Spencer Lavery out because it is a healthcare broker and not general insurance, so different parameters as well as size.

Total consideration is what counts (small deposit, big baloon payment doesn't make it a better deal)

disraeli, it is common practice to use turnover to calculate purchase price. The business model is the always similar - you get commission and pay wages, rent and overheads. If you know the turnover, you can calculate the profit you should be making by adjusting the cost base.

[disraeli] 09/10/2007 14:27

The interesting question and what cannot be guessed from the news/city release is the multiple paid, not for turnover, but for future potential profit. Yes I can see the reported profit from the latest Marcus Hearn figures, but there will undoubtedly be exceptional items or director costs which, if stripped out, will in future accounts make the numbers much more favorable to the acquirer. Also remember that the acquisition is largely for cash so little dilution of earnings for existing shareholders, which is good if the deal is the right one for the group...

[gac100] 09/10/2007 13:47

Hi geovest - yes, that's well worth pointing out, I see where you're coming from. As you say, we do have limited information. Marcus Hearn certainly stands out in the comparative x turnover figures. I note too that if you strip out the performance-related deferred consideration and look just at the intitial consideration* then MH stands out even more (if my calculations are correct - I've just flown through them very quickly):

MH: initial consideration £1.88m for £1.33m turnover = 1.4x turnover
Sw: initial consideration £0.46m for £1.23m turnover = 0.4x turnover
Kn: initial consideration £0.64m for £0.99m turnover = 0.6x turnover
Ba: initial consideration £0.51m for £0.90m turnover = 0.6x turnover

BTW is there something special about the Spencer Lavery acquisition in March 2006 that means its not on your list? I'm not being cute, its before my time and as far as I know there may be a perfectly good reason for not comparing it. The total consideration for SL was £0.62m for £0.26m turnover, or 2.4x turnover (that's the same calculation method I think that gives you MH at 2.05x turnover).

Well, after all the number juggling, it must come down in the end I guess to faith in the management and its record to date. On that basis I am prepared to believe that there must indeed be very good reasons for paying the price they paid for Marcus Hearn.

* Ignoring the different mixes of cash and shares in the acquisitions

[geovest] 09/10/2007 12:13

bigman,gac - I fully agree that they have done a superb job with acquisitions so far, but if you look at the last three big acquisitions:

Swinburne: paid 0.97x turnover
Knagg: 1.48x turnover
Baskeyfield: 1.29x turnover

For Marcus Hearn they've paid 2.05x turnover. I'm not saying they've overpaid, as there may be very good reasons for this, but it appears a very full price based on the limited information supplied and compared to previous acquisitions.

That is NOT a critisism of the management, only an observation.

Like you, I beleive that management will make this a profitable acquisition, but the risks are slightly higher.

[gac100] 09/10/2007 10:47

bigman - i hadn't intended to sound sceptical; totally agree with what you say. I was querying geovest's comment. I do think that when CBG say "significant synergies", it can be taken at face value. management have done a great job so far. I hold for the long term.

[bigman] 09/10/2007 09:54

gac100 just look at the long term chart that is "significant" at the top of the page.these guys know what they are doing the acquisitions always look expensive and they turn them into something special. been in this for ages and it is always the same.

[gac100] 08/10/2007 08:07

The expected "significant synergies" must be pretty significant?

[geovest] 08/10/2007 07:57

Looks like a very full price paid for Marcus Hearn.

[gac100] 08/10/2007 07:39

Acquisition



"Marcus Hearn is a provider of specialist niche insurance products and general
insurance broking services, based in Shoreditch, London."

Our Chairman says: "...extends the geographic footprint outside the North West ... The Group is now well placed to continue its expansion plan and we look forward to the next phase of development in the North and the South."

[green sand] 19/9/2007 12:21

Bit of movement this morning 3 v 3

Edit: looking at the timing it would appear that the 1600 deal moved two MMs up, so you might be right, not much about. Time will tell

Good luck

GS

[helpjoe] 18/9/2007 17:46

£2 may be coming quicker than I thought. Marketmakers must be short of stock or there is more good news on the way which they are pricing in. Anyone subscribed that can see any movement in Level 2? ..IMHO DYOR

[geovest] 18/9/2007 15:04

Good to see they had too pay up, but strange that it didn't tick up the quote.

[green sand] 18/9/2007 13:01

This time a 3.7% premium to get 6k. Somebody wants in.

[green sand] 11/9/2007 12:55

Still strong, looks as though somebody has had to pay a premium to get 6k.

Good luck

GS

[bigman] 07/9/2007 08:08

I wish it had been me buying that lump, nearly 300k, upwards and onwards

[don muang] 05/9/2007 19:20

Cambodia and Vietnam are developing tours along the coastline that connects the two countries, said the Cambodia Ministry of Tourism.

[helpjoe] 05/9/2007 19:09

Someone bought 150,000 today, which must be an institution at that level. Have heard some interesting views on this sector of the market and CB seems to be very well positioned for the future...and attracting the right sort of attention IMHO DYOR etc..

[green sand] 04/9/2007 12:15

Octopus Asset Management Nominees Limited have their tentacles around another 60k. CBG generating a lot of interest.



Good luck

GS