The runners and riders in the Open GI sale

It’s that time again for Open GI. According to reports, the broking software house has hoisted the for sale sign above its door. Majority shareholder private equity firm Montagu has got advisers working on a deal, with a sale targeted for the second quarter of 2023.

The investor has been involved with Open GI since 2014, when it bought the technology company’s shares off Towergate founder Peter Cullum and others, to back a management buyout. 

Private equity interest

Private equity is most likely to be interested in the Worcester-headquartered technology firm. Open GI’s big plus is that it has been consistently profitable.

The firm’s latest results show post-tax profits rising by more than £1.75m to £13.7m.

Reliable profits mean that any interest payments on debt can be paid off, viewed as an important attribute by private equity houses looking for investments. The downside for any investor is the difficulty in organically growing the business.

Open GI posted a fall in revenue for the third year in a row in its results for the year ended 31 May 2022. Revenue dropped to £39.42m for the year from £41.4m in 2021.

Open GI has looked increasingly to managing general agents and insurtechs as growth opportunities, but that marketplace is fairly limited in growing software customers compared to, for example, commercial brokerage.

Acquisition route 

A new private equity investor, with deep pockets, may look to acquisition as the route to growth.

CDL and Open GI coming together would create a dominant position on personal lines broking software, but CDL has never been touted as being available, and consistently insisted it will keep its independent status.

As for the trade buyer route, the obvious potential purchaser is Applied Systems.

Having been in the UK market since its acquisition of Insurecom in 2013, the US technology giant is likely to have already again considered buying Open GI. As previously reported by Insurance Age, it certainly has done in the past, for instance in 2018.

Where would be the value in such a deal?

Applied Systems strength is with office brokers, such as A-Plan and Broker BHIB. Open GI would add another dimension with its MGAs, insurtechs and personal lines brokers that sell directly to customers online.

Furthermore, organic growth among broking software houses in the UK is difficult, meaning acquisitions provide an answer.

The drawback lies in the lack of synergy between Open GI and Applied Systems. There is also no rationale to expand margin via cost-cutting because there is no obvious duplication and centralisation opportunities.

Innovative technology

Maybe, at a push, one could see Applied Systems’ highly-regarded investor Google bringing its innovative technology to play on Open GI.

A better firm for Applied Systems would be Acturis, adding commercial branch brokers to the likes of A-Plan and BHIB.

Curiously enough, the same report of Open GI being on the blocks came with the idea that change may be afoot at Acturis. Minority investor Astorg, which has owned a stake since 2019, is said to be eyeing up an exit.

Sources close to Acturis have dismissed the idea that the business could be for sale. It appears that right now, only an extraordinary offer would prick the ears up for Acturis, which is 75% owned by staff.

But what about buying? A very long shot but would be an exciting turn of events.

Competition watchdog

Would the Competition and Markets Authority take an interest in consolidation of the personal lines software house space? 

Probably not. There are quite a few offerings for brokers in personal lines such as SSP, Applied, Open GI and CDL. A merger between two would consolidate the market, but still leave options for personal lines brokers.

Whichever firm buys Open GI will have a task on their hand in growing the technology firm. Whether it decides to grow via acquisitions or organically, they will find that the UK broking software space is mature, competitive and challenging.

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