The sale of Wesfarmers’ insurance broking operations has not yet been decided, although the signs are clear that the conglomerate is keen to sell if it can reap a substantial profit.

The way in which Wesfarmers would sell OAMPS in Australia and Crombie Lockwood in New Zealand, as well as their associated premium funding operations, is still open to speculation.

MD Anthony Gianotti told staff in a newsletter last week that Wesfarmers is “assessing the possibility” of an initial public offering (IPO), although no firm decision has yet been made.

“Indeed, one of the possible outcomes is that no change of ownership may be taken, with Wesfarmers retaining the businesses.”

insuranceNEWS.com.au is aware that the mooted sale of the broking arm has commanded the attention of large broking companies in Australia.

While Wesfarmers would normally be expected to dispose of the assets through a trade sale, insurance brokers are an attractive proposition for opportunity-starved investors at present, and a higher price could possibly be achieved through an IPO.

Informed sources say one sticking point around a sale of the combined companies is the fact that OAMPS and New Zealand broker Crombie Lockwood have very different cultures.

OAMPS is centrally controlled and has “found it easier to cut controlling costs than grow its top line”, one source says. Crombie Lockwood is seen as a world-class broking operation with a low-cost, small management base and entrepreneurial branch managers.

“Crombie Lockwood makes nearly twice as much as OAMPS on a much lower cost base,” he told insuranceNEWS.com.au. “But OAMPS, in the right hands, could have massive upside possibilities. It has a good footprint, but it needs to be more entrepreneurial and competitive.”

Possible contenders for a trade sale, with a summary of opinions, are:

Aon: Its dominant position in the New Zealand broker market could create competition issues in that country, with the IAG purchase of Lumley NZ already proving controversial.

Marsh: The global broker wants to build a significant national footprint in the SME space through its new Marsh Advantage Insurance business. It would also be a much stronger competitor for Aon in New Zealand.

Arthur J Gallagher: It would probably be deterred by the asking price and the challenges of merging two very different businesses.

Austbrokers: Shareholders in the highly successful company would probably not welcome the debt levels required to buy the assets, or the distraction involved in folding two different operations into a company that concentrates on the “owner-driver” model.

Steadfast: Cashed-up and already active in the New Zealand market, the Wesfarmers assets would give the newly listed broker group a very strong position in the hotly contested SME space in Australia and New Zealand. However, it could be too much too soon.

While some industry sources contacted by insuranceNEWS.com.au have expressed doubt at the $1.12 billion figure for the OAMPS and Crombie Lockwood operations quoted by The Australian newspaper, others see it as achievable.

“That’s in the region of 17 times [earnings before interest, tax and amortisation], but remember that IAG just paid 19 times for an insurance company with capital risk,” one senior broker said.

Another says OAMPS “is worth about $350 million, if I was feeling really bullish. Crombie Lockwood is worth more, but it has fewer growth opportunities.”

“One thing's for sure: if you deal with [Wesfarmers CEO] Richard Goyder he’s going to be selling at the top of the market and looking for a big return.”