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Brown & Brown Inc. continues its journey on the acquisition trail, with no planned stop in sight.
That should help fuel its growth, despite the relatively slow economic recovery of its key middle-market business, said President and CEO J. Powell Brown.
Still, Brown & Brown grew its brokerage revenue 14% in 2013 to $1.36 billion, due in large part to acquisitions, and rose to No. 7 in the 2014 Business Insurance ranking of the world's largest brokers.
Brown & Brown also grew its retail brokerage revenue by 18.8% to $705.5 million and its wholesale revenue by 16.8% to $194.7 million in 2013, while its reinsurance revenue fell 8.6% to $14.8 million. The broker posted 6.7% growth in organic commissions and fees in 2013 vs. 2.6% in 2012, according to a filing with the U.S. Securities and Exchange Commission.
Its most recent major acquisition was completed in May: the $602.5 million purchase of Wright Insurance Group of Uniondale, New York. The biggest piece, $587.5 million, was for Wright's program business, which provides services for government-sponsored insurance programs and proprietary national and regional programs, while $7.5 million purchased Wright National Flood Insurance Co.
This follows Brown & Brown's $336.5 million purchase of Atlanta-based Beecher Carlson Holdings Inc. in 2013.
In April, Brown & Brown entered into a five-year, $1.35 billion unsecured credit facility to fund acquisitions and future growth. That was “just a natural evolution of our capital structure. As we've gotten to be larger, it'll help us to continue to grow and finance our growth and operations in the future,” said Mr. Brown.
“There is competition for transactions” with other publicly traded brokers and equity backed firms, which “can be a challenge from an acquisition standpoint,” Mr. Brown said.
Brown & Brown's acquisition strategy “for the most part, I think, is well-planned out,” with the brokerage “taking advantage of the market opportunities,” said Meyer Shields, managing director at Keefe, Bruyette & Woods Inc. in Baltimore.
However, the recovery from the financial crisis “has been uneven in Brown & Brown's best market,” which is Middle America, compared with larger urban centers, “so there's not the growth we've seen” historically, said Joshua Shanker, New York-based analyst at Deutsche Bank Securities Inc.
Mr. Brown agreed. Smaller companies, in particular private firms, “were the last to lay off people when the economy slowed down” and “have been reticent to rehire people, so they're trying to do more with the same number,” he said.
Smaller companies also have been slow to make capital investments. “It affects us, because two-thirds to three-quarters of Brown & Brown's business is driven by exposure units,” he said.
Still, Brown & Brown is “looking at all sizes and shapes of acquisitions,” Mr. Brown said.
In June, for instance, the brokerage announced the acquisition of certain assets of Gaston & Associates Inc., which has annual revenue of about $2.4 million. The operation, which offers property/ casualty and employee benefits insurance and services to clients throughout the Northeast, will operate from Brown & Brown of New York Inc.'s existing Rye Brook, New York, location.
Mr. Brown said the brokerage plans to seek acquisitions in all four of its divisions: retail, its largest; national programs; wholesale brokerage; and services.
“We're actively looking to invest in high-quality operations in all four of those divisions. There is not a geographic or a specific type of an acquisition,” he said.
“We think there continues to be a number of very high-quality acquisition opportunities out there. Different people sell for different reasons at different times,” he said. “The most important thing is cultural fit.”
But with Mr. Brown firmly established as CEO as an element of stability, “as long as the economy keeps grinding upward” and insurance rates move up or basically remain stable, the brokerage should “continue to see positive low- to mid-single-digit organic growth,” Mr. Shields said.
“Our goal is to grow our business organically and through acquisitions where it makes sense, and that's where we're continuing to invest,” whether in people or ac-quisitions, Mr. Brown said.
While many brokerages see retaining employees as a priority, some say they could put more effort into attracting talented workers.