HRH, Hub stock prices soar; B&B grows wholesale premium to $1 billion

Stock Price Activity: Brokerage stocks have varied through the first three quarters of 2006. Brokers such as Hilb Rogal & Hobbs and Hub International are having an exceptional year, with their stock trading up 11.7 percent and 13.0 percent respectively. However the two largest brokers in the United States, Marsh & McLennan and Aon, have traded down 9.8 percent and 4.6 percent respectively. Arthur J. Gallagher has also been down significantly, 10.7 percent, through Sept. 30, 2006.

M&A Activity: Brown & Brown, through its subsidiary Hull & Company, has quickly amassed approximately $1 billion in annual wholesale premium volume. On Sept. 30, Brown & Brown announced several acquisitions of property/casualty wholesalers. Hull expanded its presence in the Northeast with the acquisition of Delaware Valley Underwriting Agency, Inc. and Residential Underwriting Agency Inc. The aggregate annualized revenues of the acquired entities are $15 million. Brown & Brown also agreed to acquire two other wholesalers, Penn Independent Corp. and Apex Insurance Agency Inc. In September, Jardine Lloyd Thompson Group plc announced that it reached an agreement with Alliant Insurance Services Inc. for the sale of its U.S.-based P/C insurance and employee benefits businesses. The consideration is $100 million, including $5 million of deferred consideration payable by installments at the end of 2008 and 2009, subject to the profitability of the businesses being sold. The net consideration on completion after transaction costs, including retention bonuses, is approximately $85 million, or 12.5 times profit before tax of $6.8 million in 2005. The proceeds will be used to further enhance JLT’s financial position including debt reduction. JLT will continue to operate specialty U.S.-based aviation and wind power insurance businesses and reinsurance operations.

Ten acquisitions were announced in August, including the largest acquisition of the year. Lockton announced it has reached a definitive agreement to purchase Alexander Forbes International Risk Services, the international brokerage operation of Alexander Forbes Limited, the world’s ninth largest insurance broker, for $170 million. The transaction will make Lockton the largest independent, privately-owned global insurance broker. The combined business will have more than $600 million in revenues and 3,700 professionals with locations in Europe, North America, Latin America, and Asia. The Alexander Forbes business to be acquired had 2005-06 revenues of $202 million.

Capital Raising Activity: Brooke Corp. announced the sale of 20,000 shares, representing $20 million of its newly designated Perpetual Convertible Preferred Stock Series 2006. The net proceeds will be used to repay a $10 million promissory note issued during the second quarter of 2006 for the purpose of contributing capital to Brooke Corp.’s finance company subsidiary to help it fund a growing loan portfolio. The remaining net offering proceeds will be used to support the growth of Brooke Corp.’s subsidiaries, including growth through additional product and service offerings made available to Brooke insurance agency franchisees.

LMC Capital LLC is a national investment banking firm focused exclusively on the insurance industry. Services include industry-specific advisory relating to mergers and acquisitions, capital raises and valuations. Contact: 704-943-2600, Info@LMCCapital.com, or visit www.LMCCapital.com.

Topics USA Agencies