By DAN REYNOLDS, senior editor of Risk and Insurance®
Only a few insurance brokerages bucked the trend in a chaotic 2008 and increased their number of acquisitions. Arthur J. Gallagher & Co. was one, and markedly so, but so was Daytona Beach, Fla.-based Brown & Brown Inc.
The company, based on 2007 brokerage revenues and before the merger of Willis and HRH, was the ninth largest insurance broker in the United States, and its activities in 2008 made it larger. The company completed 43 acquisitions in 2008.
Brown & Brown's chief financial officer, Cory Walker, said that 2009 should be "pretty much the same." Walker said that the firm historically has averaged in the thirties in annual acquisitions.
FILLING A VACUUM
Like rival Gallagher, Brown & Brown is seizing an opportunity created by the absence of banks and private-equity firms, which two or three years ago were competing for the very same brokerages Brown & Brown is now buying.
"I'm not so sure that there has ever been a time when it hasn't been competitive," Walker said during a January phone interview with Risk and Insurance®.
"But with that said, there was a period of time where a couple of years ago the banks had really jumped into the insurance agency business with two feet. And they really didn't understand the insurance agency business, and they paid phenomenal prices for insurance agencies," Walker said.
They paid big money for them, and they were buying cultures that didn't necessarily mix with their own, Walker added.
"And now they are starting to realize that they are these ivory-tower, hands-off managers, and insurance agents, we're jungle animals, we are down at street level, we're banging our heads against the door, opening doors and stuff like that. And the cultures, historically, haven't seemed to work very well with the exception of a few banks that have done a very good job of doing it," Walker said.
Now, with many banks walking around in a daze from their subprime mortgage losses and being loath to lend anybody money--much less spend some of their own--prices have softened somewhat. So brokerages that are sound enough can find good values, not deep discounts mind you, but good values for the strong, well-run agencies they covet.
"I think we are seeing some softening there," said Ken Crerar, the president of The Council of Insurance Agents and Brokers, based in Washington, D.C.
"Because there is less competition and I think partially because the firms that are out there are on the block, if it's a really good firm, they'll get their value. If it's a firm that has a number of issues, you know, I think there is going to be some pressure on them," Crerar added.
As for what Brown & Brown is looking for in an agency, Walker is direct, instructive and to the point.
"It's pretty easy, it's people," Walker said. "We don't care where any of the acquisitions are. We don't go to a state where we don't have something and say, 'We've got to buy something here,' " he said.
"We buy or attract agencies that just have high quality people and that have got a leader and they can generate revenues in the future and they know how to make money," Walker said.
With the same frankness, Walker dismissed the notion that his firm would buy agencies and increasing revenue as a hedge against the soft market.
"If somebody is doing that, they're doing that on a short-term basis. And whoever has a short-term basis will have a short-term life," Walker said.
NO MUSCLE CUTTING
Following the same long-term thinking, Walker said his firm isn't going to stop hiring talent out of school, putting it on an attractive salary, and teaching that talent how Brown & Brown does business.
"Even though it is a soft market, we are in the people-recruiting and people-enhancing business, and you have always got to do that, even in times that are not as good as the others because you have always got to continue to grow high-quality people," Walker said.
"And you can't stop that. If you stop that, that is where we start saying you start cutting into your muscle."
February 20, 2009
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