Karen Ellis bought Ellis Clowes in a management buyout in 1996 and bought it for a second time in 2009. Talking to In the Know she recounts two very different MBO experiences.
“I always want to know how things work,” says Karen Ellis, managing director of specialist insurance broker Ellis Clowes. “Whether it’s a mechanical device or a business, I want to understand what makes it tick.”
That innate desire to ‘get under the hood’ has served Karen well over a career in the insurance industry that began when, straight out of school, she joined retail broker TL Clowes. “It was a junior position, “she recalls. “I had just completed my ‘O’ levels and I was one of the thousands of school leavers who were taken on by the insurance and financial services industries every year back in the late seventies.”
From that modest beginning, Karen set about acquiring a full understanding of a complex and diverse industry. More than three decades on she is Managing Director of Ellis Clowes, having bought the company not once, but twice, in two very different management buyouts.
The First Time Round
Karen’s first MBO was back in 1996. Under the leadership of owner Tony Clowes the business had evolved from a specialist in reinsurance and the aviation industry to a broker that had established a lucrative market niche providing services for the motor racing industry. Seeking to share in the growth they were helping to create, Karen and colleague Paul Dudley approached the founder and asked if they could each buy a stake. “Tony got back to us two years later. He told us that no we couldn’t buy a stake in TL Clowes, but we could buy the whole thing.”
It was a huge step. On one level, Karen simply carried on running the company as before, but something fundamental had changed. “In one sense you’re doing the same job but you have the added responsibility of being an owner, “she says. “You have the responsibility to the people who work for you and you also have a responsibility to the regulators. When Paul and I bought TL Clowes, we had to find the skills to manage the company as owners.”
They found the skills. With the buyout complete, Karen and her co-owner set about growing the business. There was no immediate thought of an exit but the company caught the eye of a number of potential buyers. “It was the age of ‘big is beautiful’ in the insurance industry there was interest in buying us. Eventually we got an offer from THB and decided to sell.”
The Second Buyout
The attraction that Ellis Clowes was a retailer broker – selling direct to clients – while THB operated primarily in the wholesale insurance market. As Karen saw it that meant that the company she had built could continue to operate independently, albeit as part of a group structure. However, over time the gulf between the two businesses widened. THB grew by acquisition on the wholesale side, leaving Ellis Clowes out on something of a limb. “I resigned and asked if I could buy back the business. We completed the deal in 2009.”
This was not simply a case of history repeating itself. For one thing, Karen was buying the business on her own, without the moral managerial support of a colleague. Added to that was the fact that this was a very different kind of buyout. If the first deal had been a compact between colleagues and friends who knew and trusted each other, the second was a fully-fledged corporate transaction. “When I bought the company from Tony he knew and trusted me and there was very little due diligence – it was almost done on a handshake. When we sold to THB the due diligence was onerous and there was also a huge amount when I bought the company for the second time,” she says.
The regulatory environment was also very different. Despite years of working in the industry both as an owner and senior manager, Karen had to submit herself for approval to the Financial Services Authority and Lloyds. All of this represented a significant drain on managerial time. “I found that I was doing my job of managing the company during the day and would be spending the evenings filling in forms and working on business plans.” she says.
It’s a common scenario. Buying or selling a company while simultaneously playing a part in the day-to-day running of operations creates a risk that the business will suffer in the face of divided management time. Karen’s advice is to bring in people who can help. “It’s important to have a good team around you. In my case, I had a huge amount of help from a commercial lawyer. I don’t think I could have done it without him,” she says.
With the latest MBO behind her, Karen is running an independent broker in a very competitive market. “We have a good company and we know the market well, but we are aware that we are operating at the sexy end of the insurance market – providing services to the sports industry – and there are a lot of people challenging for the business we have.”
A saleswoman at heart, Karen relishes that challenge and she has surrounded herself with a highly motivated team. “We have some good young guns who have bought – rather than been given – equity in the business,” she says. “They represent the succession and they will ensure that we will have a sustainable business well into the future.”
Karen Ellis’ MBO Tips
Fully understand your responsibilities as an owner. You will have responsibilities to the people you work with and to regulators.
Surround yourself with a strong team.
Make sure you have the finances you need.
