The Race to the Finish Line
Merger and acquisition (M&A) activity between July and September was robust making the third quarter the most active with 61 deals versus 36 last year. Deal volume for the first nine months is up 28 percent from the same 2009 period. Year-to-date, 167 transactions have been announced. With the current capital gains tax rates set to expire (although rumors abound they’ll be extended) and the persistent soft market, many sellers found themselves looking for the exits, and buyers were happy to oblige.
Arthur J. Gallagher (AJG) and Brown & Brown (B&B) lead the most active acquirers with 14 transactions each year-to-date, accounting for about 17 percent of all transactions. Five of AJG’s deals came in the third quarter, while B&B picked up six during this time. Both firms have acquired more agencies in 2010 than either did in all of 2009. Hub International follows as the third most active acquirer with eight deals; six of which were announced in the third quarter. Only four agencies have three acquisitions under their belts, while the remaining buyers have two or one.
Eighty-five percent of all acquisitions were of brokers buying other brokers. Banks are the second most active acquirer with only 10 deals, which is less than half of total bank deals in 2009 – the least active for banks in a decade! Although bank acquisitions are at an all-time low, some banks are just beginning or are re-engaging their efforts of building a larger bank-owned insurance brokerage. One such bank is First Niagara Financial Group which marked its entrance into Pennsylvania’s personal and business insurance market with an acquisition in August.
Several deal makers were local or regional agencies buying for the first time (or the first time in a long time); buying their neighbor; buying their competitor; or, buying the agency with no existent perpetuation strategy. Ninety different insurance brokers have acquired 142 firms this year. The table on the next page of select M&A activity is primarily reflective of local and/or regional agency acquisition activity.
One such acquisition was by Dawson Cos., headquartered in Cleveland, Ohio, which specializes in property/casualty, surety bonding and employee benefits. Dawson picked up one agency in the third quarter for a total of three for the year, all located in its home state. Another is Hilb Group, a new retail start up agency based in Richmond, Va., which acquired its first two acquisitions both located in New York. With an 80-year history and a new name, Propel Insurance, headquartered in Tacoma, Wash., acquired two Washington-based agencies.
In July, consolidation among the biggest wholesalers continued when Cooper Gay and Swett & Crawford made their merger official. The combination creates a global wholesale and reinsurance brokerage with roughly $3.5 billion in worldwide premiums. This mega merger comes just a few months after the AmWINS Group/Colemont Insurance Brokers deal. The looming soft market has made timing for mergers and acquisitions just right for some.
Buyers’ pipelines are full of deal opportunities and M&A activity in the fourth quarter should be brisk. However, with rampant talk of extending the Bush tax cuts, those eager to close a transaction by the end of the year just may decide to walk instead of run to the finish line.
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