It is one of the largest benefits and insurance brokers in the US, but NFP is a brand that few people working in these sectors in the UK will be familiar with. This looks set to change over the next year or so. The privately-owned company, which is the fifth largest benefits broker in the world, by global revenue, has ambitious expansion plans outside the US, and the UK is central to this strategy.
Matt Pawley, group managing director of NFP in the UK, has played a key role in this expansion, and is likely to take over the day-to-day running of Bromsgrove- based benefits consultancy, Johnson Fleming, which NFP bought at the end of April.
Pawley says that this latest acquisition will be a key part of its UK portfolio. This is a strategic purchase, he says, which will help the company grow within the UK.
NFP has over 5,600 employees globally, and around 110 in the UK, most of whom work in the employee benefits space.
He explains: “As a company we are looking for scale in the UK. But this is a double-edged sword and we are not in the process at present of buying businesses simply to increase sales volumes. We are looking for businesses that bring something new to our proposition.
“Johnson Fleming was a very smart acquisition from a strategic perspective. The business has a number of core strengths, which complement our own and add to the overall proposition.”
One of Johnson Fleming’s strengths is having a name that is well known and respected within the UK employee benefits space, says Pawley. As he points out NFP isn’t a familiar UK brand, and brand- recognition is lower than they’d like even in their US heartlands.
Pawley says: “This is something we are looking to address across the business, and it was definitely one reason why we wanted to buy this company.”
For the short-term at least, NFP will be looking to co-brand the business, using both the Johnson Fleming and NFP names.
At the same time though, Pawley says the business will be looking to more fully integrate earlier UK acquisitions under the NFP brand.
NFP first moved into the UK almost five years ago, acquiring Mackenzie Taylor Benefits Consultants, where Pawley was working at the time. Other acquisitions since, have included general insurance brokers Linkfield and Daventry-based employee benefits firm Wentworth.
Until now these have all operated as separate legal entities, with their own branding. This will now change. But more significantly, Pawley says the Johnson Fleming acquisition will allow for more substantial integration across these various UK businesses.
“Johnson Fleming has large corporate consulting resources and a marketing team, which we currently don’t have in the UK. It also has its own proprietary technology solutions which allows it to offer an engagement and training platform for clients and their employees.
“This is something we are looking to build-out and offer across the group.”
In recent years there has been increased focus on technology within the employee benefits sector, as a means of driving employee engagement and delivering more bespoke services.
Pawley says JF’s proprietary platform, Inform & Equip, will enable NFP to operate more effectively within this market. And there are clearly some cost savings to be made buying a ready-made platform and integrating it, rather than designing a system from scratch.
He says: “This system is at its core a pensions management tool that captures data across a whole range of different categories: from age, salary, bonus level and so on.
“This allows us to segment employees across the group, regardless of which client they are with. We can identify all employees who might be impacted by certain changes. We can then send targeted communications to them across the whole group.”
In a similar way this can be used to target marketing, and ensure certain segments get information on benefits or products they are more likely to be interested in. “We can look at age and salary cohorts and see what their main issues or concerns are and target benefits accordingly. This should also help with engagement.”
But for all the talk across the industry about engagement levels, Pawley says there is a more fundamental problem that needs addressing in the UK.
“There is a real need for more financial education and financial awareness in the workplace: giving people the information and the tools they need to take more control over their own financial affairs.”
He says working for a US-based company, this is one key difference between US and UK employees. “There are a lot of smart, well-paid university-educated people working in UK companies who don’t really know how pensions, or other financial benefits work.
“If you have a US expat working in the UK they tend to be more knowledgeable about investments, tax and retirement planning than their UK counterparts.”
This is says is partly due to the fact that all US citizens have to complete state and federal tax forms each year. “They need to be making decisions about their finances, and understand what expenses are tax deductible and what savings plans might be more tax efficient. There forces a level of engagement with personal finances from when people enter the workplace.
“For a lot of people in the UK, who have PAYE systems and state healthcare there isn’t this level of knowledge or awareness.”
NFP has a $200+m fund which invests in a range of fin-tech start-ups. A high proportion of these are in the wellness, wellbeing and heath sectors.
Pawley says the company will be looking at whether any of these, particularly those that offer financial education tools might be viable options to introduce into the UK market.
He says: “There is a huge opportunity here in the employee benefits market. As a provider we have a relatively small private client division, that accounts for around 5 per cent of revenue. We want to expand this, by offering fee-based advice to more employees.
“Alongside this there needs to be more generic financial education for those who cannot afford, or do not have the assets to make paid-for advice economical. We want these employees to be making smarter decisions about their future.”
In the space of five years, NFP has acquired four business in the UK. Pawley is definitely looking at future acquisition targets.
“We’re very positive about the UK market in general. It is an established market, underpinned by good regulation.” He points out that current exchange rates, which have seen the pound fall against the dollar in recent years, have made UK acquisitions more cost effective.
At the same time, the US market is looking more competitive. “There are a lot of well-funded mid-sized brokers in the US who are driving up valuations to buy more market share,” he says. NFP derives the vast majority of its revenue is from its North America operations, so is looking to grow overseas.
Pawley says that with the Johnson Fleming acquisition the company now has a turnover of around £12m in the UK. He predicts this will be closer to £50m within five years.
This may represent a significant expansion, but the company has grown far more rapidly in the US, and more recently in Canada. Initially NFP started as a network business, before buying out many of these firms. It now has brokerages in most of the US states.
Five years ago its business in Canada had a turnover of around US$15m, today it stands at US$100+m.
Expansion though isn’t limited to the UK. Pawley confirms that the business will be announcing an acquisition in the Republic of Ireland imminently. “This gives the company a Dublin office, which will be an important part of our strategy post-Brexit.”
Although the exact terms of the withdrawal agreement between the UK and the EU have yet to be laid out, having a Dublin-based office will give the company access to European markets, alongside the UK.
A few months ago Brexit was the main political, economic and business topic, but it has fallen down the news agenda in light of the more recent coronavirus epidemic. But Pawley says Brexit issues have not disappeared, and NFP, like many other financial services companies, is planning for all eventualities.
“We are looking to increase our footprint within the EMEA region (European, the Middle East and Asia). This will be overseen from the UK division, not the North American office. NFP will be looking to make some smart quality regional acquisitions in some of the bigger countries in this region.” This he says will opens up career opportunities for many people working in the UK, under the various companies now run by NFP. “It could be an exciting time for a lot of our employees.”
Rapid expansion, particularly when fuelled by M&A activity can lead to problems for some organisations when it comes to integrating these new businesses and managing personnel, particularly at senior level. There is always the danger some firms become too focused on internal reorganisations, at the cost of external clients and customers.
However Pawley says the company remains very focused on its clients. “There will be minimal impact for Johnson Fleming customers, for example,” he says.
While the chief executive Simon Fletcher and the financial director Jannine Cross will be retiring, all other Johnson Fleming board members and senior directors will be staying in place.
“There is not going to be any immediate change to structures and no disruption for clients.”
However, it is likely that there will be a company-wide restructure as these various different organisations are fully integrated into the NFP brand over the next 18 months.
“I think it’s likely that we will look to a standard model, where the company is organised along business lines. So rather than have a managing director of Wentworth or Johnson Fleming, we have managing directors for our employee benefits, general insurance and private client divisions.
“Management structure would be re- organised, so people report into senior managers within each division, and the separate legal entities within the company may disappear.
“Historically NFP has always provided company-wide functions like HR, compliance and finance. This would continue and can drive further cost savings.”
Making acquisitions at any time can be challenging, but has this been made more problematic by the fact that much of the UK business landscape is in enforced lockdown, due to Covid-19?
Pawley says he does not see this as being a significant obstacle. “There is the inevitable squeeze when it comes to funding deals at the moment, but a lot of the work has been done in advance.
“Our financial and legal functions are still operating as normal, albeit by using video-conferencing rather than face-to-face talks. We are keeping in touch with potential sellers more closely though.
“There is a need for more regular updates from sellers, on how clients might be effected by the Covid-19 shutdown and the potential impact on retention levels. It has also led to some new areas of discussion, for example what sort of working culture might be in place when the lockdown finishes, particularly in relation to issues like flexible working hours.
“This may not have been a major point of discussion before, but it could lead to some significant savings post-acquisition, if companies need to find office space for just 30 to 35 staff, rather than 50, due to people working from home more frequently.”