London Broker Howden Plots Giant Capital Raise on IPO Path

Howden Group, the London-based insurance broker that’s chasing an initial public offering by 2030, is in talks to raise several billion pounds in new private capital as it seeks to maintain its breakneck expansion.

The group, which is already backed by Hg, General Atlantic and Canada’s La Caisse, is working with bankers at Morgan Stanley on the project that will also bring in new external shareholders, people with knowledge of the process said.

The slated capital raise, likely to be one of the largest ever undertaken by a private UK business, is a key pillar of founder and Chief Executive Officer David Howden’s long-term plan. That strategy, set out by the company in a document shared with investors, involves taking the company public and achieving a £50 billion ($67.4 billion) valuation.

The funds raised with the help of Morgan Stanley will be used to slash the substantial debt pile accumulated by the group after an acquisition spree that’s seen it swallow about 250 companies over the past five years. They would also help fuel the company’s next leg of growth, investing in the business, luring new talent and enabling existing employees to trade shares.

“We bought companies in lots of countries, we’ve got lots of different systems in place,” Howden said in an interview, while declining to comment on the capital raise. Now the challenge is “how do we make sure actually that we pull all that together, not only a way that’s controlled, but that’s also efficient.”

A representative for Morgan Stanley declined to comment.

The group was last valued at £10 billion following an internal share sale in 2024 but the impending capital injection would help it on its way to a market capitalization within fighting distance of its largest publicly traded rivals. Achieving its targeted valuation would also propel the firm’s eponymous founder, who retains a minority stake, into the ranks of the UK’s billionaires, the people said.

Founded in the 1990s by David Howden, himself a descendant of a British insurance-broking dynasty, the firm now employs more than 24,000 staff in offices from Tokyo to Miami. Its core business involves placing complex risks with specialty insurers and reinsurers, writing cover and even advising insurance groups on capital and deals.

Howden has assembled a team of key lieutenants as he plots the group’s path to the top tier of insurance broking, including David Shalders, a former operations chief of the London Stock Exchange Group Plc and Susan Panuccio, who until recently oversaw finances at Rupert Murdoch’s News Corp. The latter was introduced through a common friend, former editor of UK newspaper The Sun, Rebekah Brooks.

Growing Pains

While talks for the capital raise are progressing, a series of questions linger over the business and the sustainability of its rapid expansion.

At the end of March, Howden’s most senior debt pile was equivalent to 5.1 times earnings. The figure is at the “top end” of the company’s 4-5 times target, Howden said. He added that his firm will be aiming for a leverage ratio of 3-4 times earnings as it works toward an IPO.

The broker “is certainly very highly leveraged,” said Terence Smiyan, analyst at S&P Global Ratings. “Although this is not uncommon with private equity-backed brokers and other relatively resilient service companies, where aggressive debt-funded M&A fuels high growth and consolidation in fragmented markets.”

Smiyan pointed to the group’s solid track record for consolidating companies it buys and underlying organic growth that have enabled it to service higher debt levels. But the firm’s recent push into the US, which he described as “aggressive”, is leading to “higher than usual exceptional costs as well as some dis-synergies, reducing ratings headroom.”

For his part David Howden said he also aims to improve the “quality” of the firm’s earnings which currently “add back” losses from its aggressive hiring to earnings — leading to much higher adjusted profits.

When hiring a team from a competitor “you’re not buying companies, you’re investing in talent. And that talent will in future deliver profit. And if it doesn’t deliver profits, you won’t employ the talent anymore. That’s why the add-back is allowed,” Howden said. “Every single private broker used it. It’s one the lenders accept totally.”

The effect in 2024 was to contribute to a more than doubling of the £387.2 million of earnings before interest, tax, depreciation and amortization that the company reported, to an adjusted figure of £922.2 million. Still, Howden maintains that the use of this accounting quirk will diminish over time as the company gains a critical mass of staff for its US business.

Software Jitters

While master of his own destiny when it comes to the company’s financial statements, Howden must also navigate growing fears about the impact of AI disruption if he is to achieve his ambition of taking the company public.

Like many sectors, insurance endured a sharp selloff after the debut of a ChatGPT enabled application that in this case enabled customers to compare insurance rates. Indeed, Hg, the private equity firm that’s among Howden’s backers marked down its holding in one of its funds by 9% in the first quarter of the year, in line with the devaluation of its overall portfolio in the period.

Howden continues to organically outgrow its peers, Hg wrote in the quarterly filing.

Still, plenty in the sector argue those fears are overdone and that the industry’s reliance on networks of relationships will be hard for AI-enabled upstarts to disrupt.

“What people forget is that in specialty insurance, particularly Lloyd’s of London, personal relationships matter a lot,” said Christopher Croft, chief executive of the London & International Insurance Brokers’ Association.

He argues long term partnerships between insurers and their clients can help smooth the peaks and troughs of the insurance cycle, helping provide stability and continuity. And insurers regularly factor in wider commercial considerations when making decisions, rather than just the individual risk in front of them.

“Currently, I suspect few people would be confident that AI can master these vital nuances,” Croft said.

But Howden’s own path to expansion in the crucial US market has challenged relationships with former partners against which it now competes.

David Howden originally planned to crack that market through a $10 billion acquisition of rival Risk Strategies but talks fell apart.

Instead, Howden pivoted to a “team lift” strategy, which has seen it grow its US headcount by more than 1,000 staff since August. While poaching dozens of brokers from rivals isn’t uncommon in the industry, the scale and speed at which Howden is executing its strategy is widely seen as unprecedented.

Howden, which has set aside tens of millions in legal provisions, has been slapped with total restraining orders as a result. In February Howden was barred from soliciting employees and clients of Marsh & McLennan Cos., the world’s largest insurance broker.

The court order followed a team raid that included the poaching Marsh executive Mike Parrish, now CEO of Howden US. The push into US retail means it now also competes with some of its clients, retail brokers who would normally send business to Howden’s teams that place risks in the wholesale market.

Alliant, a key competitor for retail customers, has started diverting business, a person with knowledge of the move said. David Howden said some US brokers had been moving business away from his company since 2014 — by placing risks with other wholesale firms — as soon as Howden started to compete with them as a specialty broker.

“Our specialty business is growing by 10% organically this year. Even with all that loss,” Howden said. “It was a rounding error to us — irrelevant, don’t care about it all.”

New York Calling

After navigating all that, Howden, an Englishman, will have to choose where to list the business. Picking the NYSE would be the sensible choice in the eyes of many observers given the company’s biggest competitors including Marsh, Aon Plc, Willis Towers Watson Plc and Arthur J. Gallagher & Co. are listed in the US.

But Howden won’t rule out at least a secondary listing in his home market, with London still the biggest hub for commercial and specialty risk.

“London is the global center, the heart of the insurance industry,” said Lorna Tilbian, a veteran UK investment banker and currently co-chair of wealth firm Dowgate Group. “Howden will be something special here. While in America, if they suddenly decide it’s all about domestic companies, Howden would be seen as an orphan stock. No one will pay any attention.”

Either way, Howden plans to maintain a large share of employee ownership as a key incentive for staff. As such, that means an IPO would likely involve a relatively small free float. David Howden, 62, plans to stay invested in the company, and its CEO, beyond the IPO.

And while the company has benefited from the long-running consolidation in the industry, Howden remains adamant he won’t join other competitors who abandoned plans for an IPO and opted to sell instead.

“We built Howden with the goal that it is owned by the people that worked in it, and would never, ever be sold.”

Top photograph: City of London; photo credit: Jose Sarmento Matos/Bloomberg