Matt Gardner established Patriot Growth Insurance Services LLC in 2017 and launched it with a bang at the beginning of 2019 with the purchase of 17 insurance agencies. A longtime brokerage executive who worked at AssuredPartners Inc., Arthur J. Gallagher & Co., Bollinger Inc. and Aon PLC before launching Patriot, Mr. Gardner says the firm, which is already the 53rd largest broker of U.S. business and raised more capital from its private-equity backer last month, will look to add about 10 to 15 agencies or brokerages a year. He recently spoke with Business Insurance Editor Gavin Souter about Patriot’s strategy and the brokerage mergers and acquisitions environment. Edited excerpts follow.

Q: What’s the strategy behind Patriot?

A: The strategy is really to thread the needle between buyers in the marketplace that have a command-and-control model and buyers in the marketplace that have a sell to us and you’ll never hear from us again model. What we are trying to do is thoughtfully knit together a bunch of really entrepreneurial entities that grow together at an above-average organic rate, and have an energized young leadership in them, and create a national insurance agency.

Q: Do the agencies you buy retain their own identity?

A: They do; we are very particular about that. The expression we always use is that we haven’t earned the right to put our name on their letterhead yet. We think in the local markets where they live and work and the clients that they serve there, those agency names mean a lot and have a lot of brand equity, and a lot of times the agency principals have their names on the door. That means a lot in their communities, so we believe strongly in retaining those local brands and those legacies.

Q: You started with a lot of employee benefits acquisitions but have since made several property/casualty acquisitions. What is the balance of your business now and what are your plans on the property/casualty side?

A: On a run-rate basis the balance is about 60% employee benefits and 40% property/casualty, including personal lines. I’m a property/casualty guy by background and training, and our plan is to continue to grow both sides of the business. But a lot of the opportunities we have for acquisitions are on the property/casualty side, so we think it will naturally balance out to be 50/50 or the inverse of what it is now over the next couple of years.

Q: You’ve been involved in 10 transactions so far this year, what do you envision for the rest of the year?

A: We’ve got a handful under letter of intent now where we are going through the due diligence that we expect to close in the next 60 days, so we think by the end of the year we will have closed 15 to 17 transactions and we’ll have doubled the size of our business in 2020.

Q: How has COVID-19 affected you and the M&As you are working on?

A: We are a young company, so we had a lot of work to do around technology and data security when we migrated our almost 600 employees to a work-from-home environment. 

Around M&As, there’s a change in mindset. We spent a lot of time on the road generally meeting in hotels and offices and sitting across the table from agency principals and really kind of getting to know them, but that’s all changed. Initially, I did not know how well we were going to do without the ability to do that, but I’ve been really pleasantly surprised how both us as a buyer and agency principals and their advisers have really adapted to Zoom and GoToMeeting and other technological tools. 

We are probably spending more time face-to-face with prospective sellers than we did before because you don’t need to be in the same geography, so on some levels we get a better sense of the organization.

Q: How has COVID-19 affected the overall M&A market for brokers and agents?

A: Initially, there was a rush that looked like it would change the way deals are priced and structured but that did not last very long from our perspective. Maybe there was a 30- to 60-day period where it felt like the marketplace was retracting and retrenching a little bit, multiples were going down, and it felt like there was downward pressure on valuations, and there were more buyer-friendly terms that would be available. But there is so much competition in the marketplace and so much capital chasing deals that I would say that we reverted to the mean pretty quickly, and today it doesn’t feel like there’s much of an impact from COVID-19 on either pricing or deal terms.

Q: What about the appetite for sellers?

A: I think we are seeing more people that are willing to have conversations because COVID-19 has shone a light on the vulnerabilities for small businesses, and certainly we feel like the volume of conversations that we are having with agency principals has accelerated during COVID. There are more firms that have seen what could potentially be a worst-case scenario for their firm, and they are more willing to talk about security and monetization of their most valuable asset, take some chips off the table and partner with somebody to help them to continue to grow their business.

Q: Has the hardening market had any effect on the M&A market?

A: To the extent that it tends to make an underlying agency’s organic growth look more attractive. We try to get inside those numbers and understand better what’s driving that organic growth. Is it just rising rates or is it writing new business or doing a better job of retaining clients? Not all organic growth is the same.

I don’t know that the rate environment has changed pricing or terms, but for firms who are, as we are, laser-focused on organic growth there certainly has been an improvement in underlying organic growth.