Momentum Strong for Broker M&As in October, November

January 13, 2008

Stock Prices: Aon Corp. (NYSE:AOC) continued to outperform the sector, up a remarkable 43.1 percent year-to-date. The company reported third quarter 2007 results at the end of October. Net income increased 92 percent to $204 million for the third quarter, compared to $106 million in the third quarter of 2006. Total revenues for the quarter increased 11 percent to $2.4 billion; organic revenue growth contributed 6 percent to the revenue growth. The company also repurchased 2.3 million shares for $100 million.

M&A Activity: Four separate managing general agencies (MGAs) and wholesalers were acquired during October highlighted by PMA Capital Corp.’s (Nasdaq:PMACA) announced acquisition of Midlands Management Corp., an Oklahoma City-based managing general agency, program administrator, and provider of third party administrator services. Midlands is known for its expertise in underwriting excess workers’ compensation and related insurance products on behalf of third party insurance carriers. PMA will pay $19.8 million in cash at the closing of the transaction, subject to certain price adjustments for net worth at closing, with the ultimate purchase price of the transaction ranging from $22.8 million to $44.5 million. The final purchase price will be based on Midlands’ ability to achieve EBITDA growth for its business over the next four years. Midlands had revenues of $30 million in 2006.

First Mercury Corp. (NYSE:FMR), AmWINS Group Inc. and Shore Bancshares Inc. (Nasdaq:SHBI) also acquired managing general agencies and wholesalers during October.

More MGAs and wholesalers were acquired in November when Darwin Professional Underwriters Inc. (NYSE:DR) announced it was acquiring privately owned Agency Marketing Services Inc., a 25-year-old wholesale insurance brokerage firm specializing in professional liability program management.

Also, Brown & Brown’s Hull division acquired McFall General Agency Inc., a wholesaler with $2.7 million in revenues.

Deal momentum remained strong in November, with 18 announced transactions, slightly below the 21 deals announced in October. Overall, in the brokerage sector 183 transactions have been announced year-to-date. While some banks are selling their brokerage operations, Huntington Bancshares Inc. (Nasdaq:HBAN) announced the acquisition of Archer-Meek-Weiler Agency Inc., the largest independent agency in Columbus, Ohio, with $60 million in premium volume and 40 employees.

Brown & Brown (NYSE:BRO) was extremely active during this two month period with the announcement of seven transactions, which brings their 2007 year-to-date tally to 18 acquisitions. Brown and Brown’s targets have ranged from a wholesaler in Oregon to a retail agent in Georgia.

Not to be outdone was fellow middle-market broker consolidator, Arthur J. Gallagher (NYSE:AJG), with four deals of their own announced in this two month period. Gallagher announced 17 acquisitions in 2007.

Other multiple buyers for the two month period included USI Holdings Corp. and Hub International Limited.

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