M&A Activity at Decade Lows

By | February 21, 2010

Leading into 2009, agencies were at a crossroads; uncertain of whether to sell, buy, or implement new or improved organic growth strategies. The path was uncertain, but it was widely believed that market, economic and political dynamics would impact and continue to drive strong merger and acquisition (M&A) activity throughout the year. Instead, announced transactions were at the lowest levels in six years and the second least active of the decade. The number of announced transactions in 2009 was 185, down 40 percent from the record year of 307 transactions in 2008.

Brown & Brown, AJG, Hub, Marsh

Brown & Brown, who has historically been the most active acquirer each year, was surpassed for the first time since 2000 by Arthur J. Gallagher as the most active acquirer. The top six most active acquirers were Arthur J. Gallagher & Co. (11), Hub International Limited (9), Brown & Brown (8), Marsh & McLennan Cos. (7), and tied for fifth place were Wells Fargo Insurance Services and Ascension Insurance (6).

These six national brokers accounted for 47 transactions, or 25 percent of all transactions announced.

Arthur J. Gallagher (AJG) acquired three of its 11 deals in the fourth quarter. Two were retail agencies; one, a benefits firm in Minnesota and the other a property/casualty agency in North Carolina. AJG also picked up Triad Insurance Agency, a managing general agent and wholesale insurance broker providing excess and surplus P/C coverage to retail agents and broker clients throughout Hawaii. Triad was a subsidiary of Bank of Hawaii and will now operate under AJG’s wholesale entity, Risk Placement Services.

Hub International, the second most active acquirer, announced four transactions in the fourth quarter. It continued to expand its Canadian operations with the purchase of Mones & Associates Insurance Brokers, one of the largest personal and commercial insurance brokers in Western and Northern Canada with approximately $10 million in annual revenue, from Aviva Canada. Two other acquisitions were in California with the fourth in Montana.

Several units of Marsh & McLennan (MMC) were active acquirers this quarter. One in particular was the new Marsh Inc. subsidiary Marsh & McLennan Agency LLC (MMA). Founded in late 2008, MMA was established to focus on the middle-market — small to mid-sized businesses throughout the United States — and operate independently from Marsh’s insurance brokerage operations. Industry participants waited eagerly all year for the new agency to announce its first acquisition. It did so in November when it acquired the Texas-based firm Insurance Alliance, headquartered in Houston, with $15 million of revenue. MMA announced in December the acquisition of The NIA Group, headquartered in New Jersey, with $62 million of revenue.

Bank Deals Lowest of the Decade

The number of bank deals at year-end reached the lowest level of the decade. From a percentage standpoint, bank transactions, as a percent of total deals, have decreased from a high of 45 percent in 2000 to the current year record low of 11 percent.

Wells Fargo Insurance Services (WFIS), accounting for six of the 21 total bank transactions, acquired three agencies in the last three months of the year.

BB&T did its only acquisition of the year when it purchased the Florida-based Oswald Trippe & Co. in November.

Banks will continue to play a minor role in brokerage consolidation with the exceptions of WFIS and BB&T.

Less demand by national brokers coupled with decreased valuation multiples in 2009 presented a unique opportunity for local and regional privately-held brokers to successfully enter and compete in the M&A market. More transactions such as these among rivals and peers across the country were plentiful in the fourth quarter.

Benefit Agency Deals Down 57%

Although transaction volume was down across the board, it was most striking in the benefit space where the number of acquisitions of employee benefit agencies was down 57 percent from last year. The uncertainty surrounding health care reform left many buyers on the sidelines of M&A. Going forward, more employee benefit agencies will consider a sale due to the transformation of the health care distribution model regardless of health care reform.

It is likely various economic, market and political dynamics will begin to improve, and both buyers and sellers will be more committed to actively engaging in merger and acquisition activity in 2010. The pricing gap should continue to close between buyers and sellers who will come to the realization that long-term growth to increase revenue, profitability and shareholder value needs to be fueled by a robust M&A market.

Select Merger & Acquisition Activity:
July – September 2009

Buyer Seller Seller Description 10/12/09 AHM Corp. Holdings Inc. Adrian N. Baker & Co. MO, Retail P&C Agency (Revenue $7.6MM) 10/26/09 Aon Corp. Carpenter Moore Insurance Services Inc. NY, Retail P&C Agency 12/07/09 Aon Corp. Allied North America NY, Retail P&C Agency (Deal Value $145.0MM, Revenue $88.0MM) 10/30/09 Aquesta Bank Oswald Trippe and Co. of the Carolinas NC, Retail P&C Agency 10/01/09 Arthur J. Gallagher & Co. Fox Lawson & Associates LLC MN, Retail Benefits Agency 10/26/09 Arthur J. Gallagher & Co. Triad Insurance Agency Inc. HI, Wholesale P&C Agency 11/23/09 Arthur J. Gallagher & Co. Shuford Insurance Agency Inc. NC, Retail P&C Agency (Deal Value $1.9MM) 10/21/09 Associated Insurance Management J.E. Rice Insurance Agency Inc. MD, Retail P&C Agency 11/03/09 BB&T Corp. Oswald Trippe and Co. Inc. FL, Retail P&C Agency 11/20/09 Bollinger Inc. Patterson-McKenna Insurance Agency Inc. NJ, Retail P&C Agency 12/31/09 Brown & Brown Inc. Alamo Insurance Group Inc. TX, Retail P&C Agency (Revenue $4.3MM) 12/28/09 Capacity Coverage Inc. EJA & Associates Inc. NJ, Retail P&C Agency 10/01/09 CBIZ Inc. MeyersDining LLC CO, Retail P&C Agency (Revenue $2.3MM) 10/27/09 Group Benefit Services Inc. Client First Brokerage Services Inc. MD, Wholesale Benefits Agency 12/21/09 Higginbotham & Associates McKinney Insurance Group TX, Retail P&C Agency 11/09/09 Hub International Ltd. Mones & Associates Insurance Brokers Inc. Canada, Retail P&C Agency (Revenue $10.0MM) 12/08/09 Hub International Ltd. Associated Insurance Managers Ltd. MT, Retail P&C Agency 12/31/09 Hub International Ltd. Ogilvy, Gilbert, Norris & Hill d/b/a Ogilvy Hill Insurance CA, Retail P&C Agency (Revenue $7.0MM) 12/17/09 Integro Ltd. William E. Kelly Agency Inc. NY, Retail P&C Agency 10/12/09 Keystone Insurers Group Inc. Benefits Division of Synergy Insurance Group IN, Retail Benefits Agency 12/04/09 Lawson-Hawks Insurance Associates J6 Insurance Services Inc. CA, Retail P&C Agency 10/05/09 Marsh & McLennan Cos. Inc. Rattner Mackenzie Limited UK, Retail P&C Agency 11/12/09 Marsh & McLennan Cos. Inc. Insurance Alliance TX, Retail P&C Agency (Revenue $15.0MM) 12/18/09 Marsh & McLennan Cos. Inc. HSBC Insurance Brokers Limited UK, Retail P&C Agency (Deal Value $219.3MM) 12/21/09 Marsh & McLennan Cos. Inc. The NIA Group LLC NJ, Retail P&C Agency (Revenue $62.0MM) 10/12/09 New York Long-Term Care Brokers Dan Ross Financial Services NY, Wholesale Benefits Agency 12/31/09 Northeast Delta Dental Combined Services LLC NH, Wholesale Benefits Agency 10/21/09 Seubert & Associates Heritage Agency PA, Retail P&C Agency 12/04/09 Shepherd Insurance Agency DeTrude & Co. Inc. IN, Retail Benefits Agency 12/14/09 Stone Point Capital 49% minority interest in Higginbotham & Assoc. TX, Retail P&C Agency 11/19/09 The Buckner Co. Inc. Flying J Insurance Services UT, Retail P&C Agency 10/01/09 The Buren Insurance Group Inc. Padgett-Young & Associates Inc. OH, Retail P&C Agency 12/02/09 The Securus Group Inc. The Dunlop Agency PA, Retail P&C Agency 12/31/09 TowneBank Taylor Johnson Group VA, Retail P&C Agency 10/19/09 Wells Fargo & Co. Sierra Self Insurance Services LLC CA, Retail P&C Agency 12/08/09 Wells Fargo & Co. iLeader Risk Management Solutions FL, Retail P&C Agency 12/08/09 Wells Fargo & Co. Orca Bay Benefits LLC WA, Retail Benefits Agency 10/20/09 William Gallagher Associates RPG Insurance Administrators Inc. MA, Retail P&C Agency

About Audra M. Szollosy

Szollosy is a senior vice president with Hales & Co., located in Hales' Harrisburg, Pa., office. She advises agents and brokers on valuation and mergers and acquisitions transaction matters. Phone: 717-541-9300, ext. 103. E-mail: aszollosy@halesgroup.com. Web site www.halesgroup.com. More from Audra M. Szollosy

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