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2017 brokerage revenue: $1.64 billion
Percent increase (decrease): 58.7%
USI Insurance Services L.L.C. roughly doubled in size in 2017 after closing on its acquisition of Wells Fargo Insurance Services USA Inc. from Wells Fargo & Co. on Dec. 1.
The broker’s $1.64 billion in 2017 revenue was enough to push it to No. 9 in Business Insurance’s 2018 ranking from 10th place last year.
“This past 12-month period has been a transformational one for us,” said Mike Sicard, chairman and CEO of USI. “At this time last year, we had about $1 billion of revenue, rounded. We’re now approximately $2 billion of revenue as a firm.”
“We view this very much as a merger as opposed to an acquisition,” Mr. Sicard said of the Wells Fargo deal, for which the integration began earlier this year.
“We started in the first quarter with a series of orientation summits” for business leaders in both companies, Mr. Sicard said, along with aligning resources in cities where USI and Wells Fargo offices overlapped geographically, which will continue “through the quarter and into the balance of the year.”
“There isn’t a clock on us,” Mr. Sicard said, adding USI will move on the integration of Wells Fargo “as fast as possible but as slow as necessary.”
Skill with integrating acquisitions is a key strength for USI, analysts say.
“Their ability to integrate immediately was probably huge in getting that deal,” said Timothy J. Cunningham, managing director of Optis Partners L.L.C., a Chicago-based investment banking and financial consulting firm. “USI has certainly demonstrated a great ability to do that.”
Meanwhile, USI continued its growth march, announcing the completion of acquisitions of both agribusiness broker CHS Insurance Services L.L.C. and Key Insurance & Benefits Services Inc., formerly part of KeyBank, in the first half of 2018.
“Sometimes they come in bunches,” Mr. Sicard said of acquisition opportunities.
“They’ve done this so much that I think they’re certainly more than capable of pulling it off,” Mr. Cunningham said of the overlapping acquisitions
“USI has historically been good at partnering with holding companies or banks that are exiting their insurance operations,” said Phil Trem, an executive vice president with Marsh, Berry & Co. Inc., a Woodmere, Ohio-based merger and acquisition advisory and consulting firm to the insurance sector. “Certainly, the Key Bank, CHS and the Wells Fargo transactions all require a unique approach to integration that USI has gotten quite good at.”
One of the keys to the USI approach, he said, is the way the company treats employees of an acquired firm.
“USI puts a lot of focus and energy and effort into making sure the employees have a soft landing spot and not just a job but a career,” Mr. Trem said. “They do a really good job of making those employees feel welcome and part of the USI team. It’s a really important approach, which helps make transactions successful.”
The CHS and Key Bank deals add to USI’s industry expertise and geographical footprint, respectively, Mr. Sicard said.
“Industry vertical expertise is a critical component of USI, particularly on the property/casualty side, and CHS is a specialist in the commercial ag vertical,” Mr. Sicard said, calling the acquisition a “great growth opportunity.”
The Key Bank deal allows USI “to expand into places we did not have a significant presence, such as upstate New York,” Mr. Sicard said, as well as western Pennsylvania and parts of Connecticut.
And the market abounds with further opportunities, according to Mr. Sicard. “There are a tremendous number of gems and they vary in both location and size,” Mr. Sicard said of acquisition targets. Other aggregators represent one class of opportunity, he said, along with strong regional players.
Valuations have been relatively stable over some 30 years, Mr. Sicard said, but are “probably on the high end on an industry basis for the last couple of years.”
“One of the challenges in a public company environment can be the quarterly earnings approach and focus,” he said. “For the types of investments, the types of innovations that we need to be making in our industry, we need to be thinking out years, not quarters.”
The improving economy “helps everybody because so much premium and, correspondingly, commission revenue in commercial property and casualty is driven by payroll and sales, and employee benefits is driven by headcount,” Mr. Cunningham said.
The broker merger and acquisition market remains “frothy,” and valuations are steady, Mr. Cunningham said.
The commercial insurance market saw some rate increases over the past year, which provided a slight tail wind for brokerages, but the brokers that saw the largest revenue increases mostly relied on acquisitions to drive their growth.