Stock prices mixed; middle market M&As remain active

February 25, 2007

Stock Prices: Brokers’ stock prices were mixed as 2006 came to a close. The two largest brokers did not fare well in 2006 as Marsh & McLennan Co. Inc.’s (NYSE:MMC) stock was down 1.2 percent for the year and Aon Corp. (NYSE:AOC) was flat, down 0.1 percent. However, most middle market brokers experienced an exceptional year in terms of stock price performance. Hub International Ltd. (NYSE:HBG) was up a remarkable 22.9 percent; USI Holdings Corp. (Nasdaq:USIH) up 11.5 percent and Hilb Rogal & Hobbs Co. (NYSE:HRH) was up 10.7 percent for the year. Despite record revenues and profits throughout the year, Brown & Brown Inc.’s (NYSE:BRO) stock traded down 7 percent in 2006 after a 41 percent run up in 2005 and 35 percent in 2004.

M&A Activity: A total of 51 deals were announced during December 2006 and January 2007. Middle market brokers continue to be active as Arthur J. Gallagher & Co., Hub International Limited, and Hilb Rogal & Hobbs Co. all announced acquisitions. USI Holdings Corp., who has been another middle market serial acquirer, was the one actually being acquired in the largest deal announced during this two month period. USI entered into a definitive agreement to be acquired by GS Capital Partners, a private equity affiliate of Goldman, Sachs & Co., in a transaction valued at approximately $1.4 billion, including repayment of the company’s existing debt obligations. USI stockholders will receive $17 in cash for each share of USI common stock they hold, representing a premium of 20.5 percent to the average closing share price for the 30 calendar days prior to Oct. 24, 2006, the day USI announced it had formed a special committee in response to an indication of interest received from a private equity firm in acquiring all of USI’s outstanding common stock. Marsh & McLennan announced it signed a definitive agreement to sell Putnam Investments for $3.9 billion. The proceeds from the sale should help Marsh emerge as a formidable acquirer. MMC’s President and CEO Michael Cherkasky commented, “The sale of Putnam will enable MMC to focus on strengthening the global leadership positions of our market-leading risk and human capital businesses.”

Capital Raising: Brown & Brown announced that the company and Prudential Capital Group, an institutional investment business of Prudential Financial Inc. (NYSE:PRU), have entered into a three-year, uncommitted Master Shelf and Note Purchase Agreement which could allow the company, over the next three years, to borrow up to $200 million for up to a 10-year term at a fixed rate of interest based on the Treasury rates available at the time of borrowing plus an applicable credit spread. Initially, the company is borrowing $25 million represented by unsecured senior notes issued through a private placement. The notes will bear interest at an annual fixed rate of 5.66 percent and will mature in 2016.

LMC Capital LLC is a national investment banking firm focused exclusively on the insurance industry. Services include highly qualified, industry-specific advisory relating to mergers and acquisitions, capital raises and valuations. The firm can be contacted at 704-943-2600, by e-mail at or visit the firm’s Web site at

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