2010 Ends with a Bang

Fourth Quarter Brings In Record M&A Activity

Following a year of historically low merger and acquisition (M&A) activity in 2009, market, economic and political dynamics fueled the fourth most active year of M&A activity in the past 11 years, and the busiest fourth quarter ever. Increased buyer demand and seller supply of agencies steered deal volume up 39 percent over last year to 258 announced transactions.

Brown & Brown (B&B) resumed the role of most active acquirer after an atypical year in 2009. B&B more than doubled last year’s deal count of eight announcing 23 in 2010. Arthur J. Gallagher & Co. (AJG) followed with 20 deals; then HUB International (HUB) with 18. These three leading acquirers accounted for 61 transactions, or 24 percent of all transactions announced. Just one year ago, these three brokers cumulatively announced only 28 deals, or 15 percent of total deal volume. Rounding out the top five most active acquirers were Aon Corp. with six deals, both international and domestic, followed by Confie Seguros and Marsh & McLennan Agency LLC (MMA) with five deals each. An improving economy, passage of health care reform and what should have been the certainty of rising capital gains tax rates (only to be extended two more years) clearly had an impact on the M&A activity of some of the largest brokers.

HUB was the most active acquirer in the fourth quarter with 10 deals, seven of which were announced in December. All were retail full-service agencies except for one benefits firm. Three were in Canada; three in California; and the rest were in various parts of the U.S. B&B and AJG announced nine and six deals, respectively in the quarter. B&B picked up six retail P/C agencies and three benefits firms across the U.S. for a combined $20 million in revenue. AJG’s deals included five retail agencies, including a benefits firm in Ohio and an aviation specialist in Nevada, and one wholesale broker.

MMA continued embarking upon its strategy begun in November 2009 to build a national platform serving the P/C and employee benefits needs of middle-market companies across the U.S. It picked up two benefits firms with about $78 million in combined revenue in the fourth quarter. Over the past 13 months, MMA has acquired seven agencies with annual revenue of approximately $260 million and has grown to become the nation’s 12th largest insurance agency, according to the company.

Overall, 116 different insurance brokers accounted for 221 brokerage acquisitions out of a total of 258 transactions, or 86 percent of deal volume. In addition to the top acquirers, five national or regional brokers each announced four transactions and two brokers each announced three. The remaining 103 brokers each acquired one or two brokerages.

Banks Acquisitions Fall

Banks acquired 16 brokerages which was the least amount since banks started acquiring insurance brokerages in the year 2000. Back then, banks once accounted for 45 percent of total transactions, and now account for merely 6 percent. Both Wells Fargo and First Niagara each made three acquisitions.

Insurance and financial services companies accounted for 12 deals or 5 percent of deal volume, and private equity groups and other multi-disciplined companies accounted for 9 deals or 3 percent. Acquisitions of full-service agencies accounted for roughly 43 percent. The clarity, favorable or unfavorable, provided by the passage of healthcare reform stimulated the acquisition of benefits firms — up 69 percent from last year — and accounted for 19 percent of overall deal volume in 2010. Wholesale agency acquisition activity increased above historical norms and included several blockbuster deals. Twenty-two percent of acquisitions were of wholesale agencies.

Select Merger & Acquisition Activity: October — December 2010

Topics USA Agencies A.J. Gallagher Property Casualty