The insurance brokerage industry is gearing up for what many anticipate will be a more active year on the merger and acquisition front.

Uncertainty about the economy, insurance pricing and the political environment, coupled with tight credit markets during 2009, resulted in buyers lowering their valuations and sellers opting to wait rather than sell for a lower price, experts say.

While many of those factors remain in play, growing optimism that recovery is near should translate into more deals being completed in 2010, they say.

At the same time, nearly nonexistent organic growth and concerns about rising capital gains taxes also are helping buyers and sellers adjust their pricing expectations, experts say (see story, page 21).

No one, however, is predicting there will be a flood of acquisitions in 2010.

2009 was one of the slowest years of brokerage M&A activity in the past 10 years, said Audra Szollosy, a Harrisburg, Pa.-based senior vp with M&A adviser Hales & Co.

“I do think (the number of deals) will increase in 2010, but more so in the second half of the year,” Ms. Szollosy said. “I think people need to get some confidence back and need to see some proof that things are getting better.”

While there are signs of recovery, “it's a slow go,” she said.

“From the discussions we're having with prospective buyers and sellers, there is going to be more activity in 2010...but it's not going to be a banner M&A year,” said Bobby Reagan, president and CEO of Reagan Consulting Inc. in Atlanta.

“A lot of things that were affecting transactions in 2009 are still there,” Mr. Reagan said. But there also appear to be signs of improvement, “so I think buyers and sellers can be a little more optimistic about the future and, if they are, it's easier to come to pricing terms that can get a deal done.”

“We'll see the momentum come back in 2010, but it's not going to come back like gangbusters,” agreed Timothy J. Cunningham, a partner with OPTIS Partners L.L.C. in Chicago.

There are some sellers that, for a variety of reasons, sat on the sidelines in 2009 that need to sell and there are some buyers struggling with organic growth that need to make acquisitions, Mr. Cunningham said. While that will create more deal flow, the soft insurance market and troubled economy will continue to hamper activity overall, he said.

Two firms expected to be big acquirers this year are Marsh & McLennan Agency L.L.C. and Hub International Ltd.

After taking most of 2009 to seal a deal, Marsh & McLennan Agency said in November that it had acquired Insurance Alliance, an agency based in Houston with $15 million in annualized revenue.

The next month, it acquired Paramus, N.J.-based agency NIA Group L.L.C. for an undisclosed sum. NIA ranked as the 34th-largest brokerage of U.S. business in 2009, based on brokerage revenues of $69.7 million.

David Eslick, chairman and CEO of the New York-based Marsh & McLennan Agency, has been very vocal that those transactions are part of a series of strategic acquisitions that the agency will make in 2010 as it builds out its national platform.

Hub International also has ambitious acquisition plans for 2010. In November, the Chicago-based brokerage secured a $200 million incremental senior secured term loan, which it said it intends to use for general corporate purposes that include acquisitions.

“At Hub, we are continually seeking to grow our organization through acquisitions. We expect that 2010 will present many opportunities for us to select partners who share a similar vision and bring additional expertise to our company,” said Richard Gulliver, president of Hub.

Toward that end, the broker last week announced the acquisitions of Ogilvy, Gilbert, Norris & Hill, a brokerage based in Santa Barbara, Calif., with $7 million in annualized revenue, and the commercial lines and life and health books of business of Wescom Insurance Services L.L.C., an Anaheim, Calif.-based brokerage.

M&A advisers said they also expect to see increased activity from traditional acquirers Arthur J. Gallagher & Co., Brown & Brown Inc., USI Holdings Corp. and BB&T Insurance Services Inc.

H. Wade Reece, chairman and CEO of Raleigh, N.C.-based BB&T, for one, said he's looking forward to a “good acquisition year” in 2010.

After making 11 deals in 2008 worth $212 million in annualized revenue, BB&T completed only one deal in 2009—the Florida operations of Oswald Trippe & Co. Inc., which will bring in about $23 million in annualized revenue, Mr. Reece said.

While economic conditions haven't improved much, “I think it's going to be a materially better and there's going to be more people with more reasons to want to sell their agencies and combine than there was in 2009,” Mr. Reece said. “I don't think we'll do 11 deals, but it would tickle me to death if we could.”

Cory Walker, chief financial officer of Brown & Brown Inc., said he is “very optimistic” about the 2010 acquisition market.

After closing 45 acquisitions that generated about $120 million in revenue in 2008, the Daytona Beach, Fla.-based agency completed only 11 deals in 2009 worth about $27 million annualized revenue.

“I think most agency owners probably see a...light at the end of the tunnel in terms of doing a two-to-three-year earn-out” deal and getting back the value they had a few years ago, Mr. Walker said.

In addition, with capital gains taxes expected to rise in 2011, agency owners may see 2010 as a better opportunity to sell than next year, Mr. Walker said.