By DAN REYNOLDS, senior editor of Risk and Insurance®
For many, 2008 will be remembered as a challenging, if not devastating, year from a business perspective. Not so for those trusty road warriors charged with expanding Itasca Ill.-based brokerage Arthur J. Gallagher & Co. Inc. through acquisitions.
That's because a phalanx of Gallagher merger-and-acquisition executives provided Gallagher with a record year for acquisitions for 2008. The team was led by Bill Bohstedt, a vice president of mergers and acquisitions in the company's Itasca headquarters, and Keith Wilcoxson, the St. Louis-based vice president, mergers, for the Gallagher Benefit Services division.
According to the company's filings with the Securities and Exchange Commission and its press releases, the company racked up 34 acquisitions in 2008, a 61.9 percent increase over its then-record 2007 acquisitions figure of 21.
Through the third quarter of 2008, according to SEC filings, the company spent $196.9 million on acquisitions, a 69.59 percent jump over its nine-month 2007 expenditure total of 61.9 percent.
FULL PIPELINE FOR 2009
Interested observers might want to heed Bohstedt's attitude about 2009.
"I can't offer any predictions because Gallagher is a public company and that would be considered a forward-looking statement, but our pipeline is very full," Bohstedt told Risk and Insurance® in January as he was shaking off a flight to Washington, D.C. and girding himself to board a 6 a.m. flight the next morning for Denver.
"So there is definitely lot of activity going from the standpoint of meeting people," Bohstedt said.
And meeting people is what it's all about, according to Wilcoxson, who said his efforts in acquiring employee benefits agencies in 2008 accounted for approximately 56 percent of Gallagher's acquisitions on a number-of-deals basis.
He said that having a very wide network of acquaintances who know each other and who know each others' businesses is a key M& A discipline.
"A lot of it is making sure you know each market and who the key players are and having contacts with those guys and making sure you know each other and what you bring to the table," Wilcoxson said.
But Bohstedt said that Gallagher isn't interested in talking to agency owners who are just looking for an exit strategy.
"Because we are all about growth, and we look for sales cultures, we look for really good leadership. We look to see that the agency has been growing and they have good margins," he said.
Helping Gallagher in that quest, according to Bohstedt, are market factors that really tipped things in Gallagher's favor in 2008. For one, Willis' acquisition of HRH removed one of Gallagher's major U.S.-based competitors in the area of brokerage buying.
"When Willis purchased HRH, it meant that there was one less competitor out there for the really good firms that we are interested in acquiring," Bohstedt said.
Another key factor is the fact that banks and private equity, which in recent years had galloped in and paid big prices for brokerages, are licking their wounds and on the sidelines. Not only are they not buying brokerages, they're selling, or trying to sell, firms they seduced two or three years ago.
"The banks in general are very internally focused right now because of the mortgage crisis," Bohstedt said.
That's made things very sweet for Gallagher and any other company that is in a position to buy, according to Ken Crerar, the president of Washington, D.C.-based The Council of Insurance Agents and Brokers.
"I would suggest that the pressure on firms that are doing acquisition is going to continue, and I think there are a number of firms in the industry who are gearing up to do some acquisitions because this is a time of huge opportunity," Crerar said.
Crerar said the enormous loss of value in the stock market and the fact that banks and private equity are on the insurance brokerage buying sidelines probably account for the fact that, overall, the number of acquisitions nationwide was down in 2008 over 2007.
According to CIAB statistics, there were 253 announced deals in 2008 and 264 in 2007.
"When we started 2008, I thought it was going to be a banner year," Crerar said. "But having said that, I think the drive toward consolidation continues regardless."
February 2, 2009
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