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By DAN REYNOLDS, senior editor of Risk and Insurance®

"I think that there were agencies that felt it wasn't a good time to sell because of the market conditions," said Rick Gulliver, the president of mergers and acquisitions for Chicago-based Hub International Ltd.

According to The Council of Independent Agents and Brokers, based in Washington, D.C., there were 253 announced brokerage deals in 2008.

But using the privately held Hub as an example, one would guess probably a lot more occurred. Gulliver said Hub announced only half of the deals it made in 2008.

For those brokerages that were active in M&A in 2008--and there were some that were very active--the general transparency and quality of record-keeping of pursued agencies was, if not paramount, increasingly important.

"The only thing I would say in this marketplace and with our experience now that we have gained in the last 10 years and some 20 years--it is a very disciplined marketplace today," said Gulliver said.

In addition to the 20 acquisitions that Hub completed in 2008, it, along with Arthur J. Gallagher and USI Holdings Corp., grabbed headlines in the third week of January when it was announced it acquired as many as 80 producers and the renewal rights of much of Liberty Mutual's direct-written middle market business.

In a universe of 30,000 independent agents and brokers, Gulliver said he expected that acquisitions will continue to flow regardless of market conditions in 2009.

ADVICE FOR SELLERS

But for those who are considering a sale of their agency, he had this advice.

"I suggest that parties hire bankers and get their ducks in a row if they are going to do a change in control," Gulliver said.

Rod Regalado, the former chief operating officer of the Denver-based employee benefits consultancy and brokerage Gemini Group Inc. is glad he did.

As of January 1, Regalado officially became the Colorado Employee Benefits Practice Leader for Hub. He credited the foresight he and his fellow company founders had when they decided years ago to keep the best books they could.

"We always knew eventually that the next step for this agency would be an acquisition of some sort, and so because of that we always kept really good books, really good general ledger. And I think that was a big plus because, when Hub came in, Hub did an unbelievable due diligence process on it," Regalado said.

That involved two CPAs, operating under confidentiality and nondisclosure agreements, sitting down for a week and drilling into the Gemini Group's records, making sure that the company's balances and revenues matched.

"I've joked and told people that it's like a business colonoscopy," Regalado said.

He said many agency owners may act and talk like they keep good books, but that's not always the case. For those who haven't always kept good books--doing things like running their wife's car payment through their agency, for example--it may not help to reform yourself in the year or two running up to merger talks.

"Just get your house in order to know what buyers look at and be prepared to be fully disclosed on what your operation is made of and what you see the opportunity in. No surprises, and then you'll have an enjoyable process, as enjoyable as it can be, and you'll have a good outcome post closing," Gulliver said.

Regalado said that one benefit of being so closely audited was that it gave him someone else's perspective on his business and confirmed, for the most part, that he had been doing a good job of running it.

"It's nice to get an outsider's opinion of your business, so I appreciated that," Regalado said. "That is one of the things that at the end, I went to the auditors and said, 'How did we look and how did we compare to what you're seeing?' "

"They said, 'You guys are better than average,' which is good, and that's what I was looking for," Regalado said.

"So to get that outside critique was nice."

February 2, 2009

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