A recent pair of big broker buyouts is getting positive reviews from market analysts, but some aren't convinced these deals indicate a year of pricey merger and acquisition activity among brokerages.

Both deals — USI Insurance Services L.L.C. acquiring 42 of Wells Fargo Insurance Services USA Inc.'s offices and Brown & Brown Inc.'s $602.5 million acquisition of Wright Insurance Group L.L.C. — make sense for the acquiring companies.

Wells Fargo Insurance Services, the fifth-largest U.S. broker with brokerage revenue of $1.6 billion 2012, said late last month it would sell the group of its smaller insurance brokerage and consulting offices to Valhalla, N.Y.-based USI Insurance Services L.L.C. USI ranked No. 10 in the most recent Business Insurance rankings of the largest brokers of U.S. business.

USI has 90 offices in 27 states that generated $712.5 million in brokerage revenue in 2012. Terms of the transaction, expected to close by the end of the second quarter, were not disclosed.

A few days earlier, Daytona Beach, Fla.-based Brown & Brown Inc. said it would acquire Wright Insurance of Uniondale, N.Y. Wright Insurance is owned by Aquiline Partners Capital L.L.C., a New York-based private equity firm headed by CEO Jeffrey W. Greenberg, former CEO of Marsh & McLennan Cos. Inc.

%%BREAK%%

Wright Insurance has 15 offices in 11 states that generated $113.7 million in net brokerage revenue in 2012. Brown & Brown, known for growing through acquisition, ranked seventh on the most recent Business Insurance ranking of brokerages of U.S. business, with revenue of $1.4 billion with 246 offices in 41 states. It also has offices in London, Bermuda and the Cayman Islands. The deal is expected to close in the spring.

“I think it's a good transaction for both parties,” John Ward, CEO of Loveland, Ohio-based Cincinnatus Partners L.L.C., a private equity firm specializing in the insurance industry, said of the Wells Fargo divestiture.

“(Wells Fargo's) objective is to streamline their operation to focus on larger markets and to align with the company's banking operations,” Mr. Ward said. “For USI, they are looking to build up their capabilities in middle America, and this is a great transaction for them for going into smaller cities.”

“(Wells Fargo is) rationalizing the operation and focusing on larger accounts,” said Jim Auden managing director at Fitch Ratings Inc. in Chicago. USI “has been an acquirer of smaller agencies and brokerages for a long time, so it really fits their model. It makes sense for them to acquire a block of offices like this.”

While Wells Fargo divested 42 of 97 offices, the deal represented only about 10% of its overall brokerage revenue, said Laura Schupbach, head of insurance for Wells Fargo in Denver.

%%BREAK%%

“What this has done for us is let us focus our investment, our management, our attention and our national resources on this smaller group of offices that places us in the sweet spot for brokerages, which is that middle-market or upper middle-market client,” she said.

She dashed any speculation Wells Fargo might be exiting the insurance business. “This is a growth strategy,” she said. “If we would have wanted to get out of the insurance business, we would have sold 97 (brokerage) offices.”

Analysts agreed.

Wells Fargo selling the offices “might be a validation of the fact that they're committed to the business if they're trying to size it to meet their strategy,” said John Wicher, principal at John Wicher & Associates in San Francisco. “It could be seen as a validation that they want to stay in the business. Otherwise they would have found a partner for the entire brokerage operation.”

Ms. Schupbach said Wells Fargo could buy brokerages in the future. “We certainly hope to be a buyer in the future,” Ms. Schupbach said. “The right time, right place, right deal; we definitely would look at things that make sense.''

Analysts also think the Wright move makes strategic sense.

“I think there is a strategic value to Wright,” said Tim Cunningham, managing director of Chicago-based investment banking and consulting firm Optis Partners L.L.C. “I think there is a belief at Brown that the flood business is going to be a growth industry.”

%%BREAK%%

“Wright has a franchise in the flood business,” which gives Brown & Brown a foothold there, Mr. Auden said.

Since 2004, Wright has been the largest administrator and processor of flood insurance for the National Flood Insurance Program, according to Brown & Brown, generating $601 million in written premiums and $71.5 million in net revenue from 676,000 policies in 2013.

“The attraction on every acquisition is always the high-quality people,” said Scott Penny, chief acquisitions officer and regional vice president for Brown & Brown. “We intend to keep (Wright's) operational leadership intact,” he said, saying the firms previously had done business together and company leaders knew each other for more than a decade.

“They are getting strong management in a space in which they think they can grow,” said Mr. Wicher, echoing Mr. Penny's sentiments on the caliber of Wright's management.

While analysts liked these two recent significant brokerage acquisitions, they differed on the industry's appetite for deals in 2014.

“It will be a very active year for deals in the brokerage and wholesale sector,” Mr. Wicher said. “Valuations continue to be strong and the cost of capital is at the lowest level in my lifetime.”

Fitch's Mr. Auden was less bullish. “There are always a number of these, but I don't think it (recent activity) foreshadows a huge ramp-up in acquisitions.”