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Brokers make 2006 a blockbuster year for M&A activity

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Insurance brokers were busy wheeling and dealing in 2006 as new firms were formed, mergers were made, new owners were considered, merger talks were halted and a blockbuster acquisition offer was rejected.

The year started off with news that veteran insurance brokerage executives Christopher M. Treanor, formerly of Marsh Inc., and John Addeo, formerly of Alliant Insurance Services Inc., were forming a new wholesale insurance brokerage, Mercator Risk Services Inc., with $20 million in private equity capital.

A few months later, seven veteran former Palmer & Cay Inc. executives, including David E. Paddison, left new parent Wachovia Insurance Services Inc. to form Savannah, Ga.-based brokerage Seacrest Partners Inc. to serve the middle and upper middle market.

Then in October, Robert Lockhart, former president and chief operating officer of Hilb, Rogal & Hobbs Co., formed middle market brokerage Kinloch Holdings Inc. and made its first acquisition--Genatt Associates, a New Hyde Park, N.Y.-based brokerage with $26 million in 2005 revenues.

But it wasn't only new brokerage formations that kept the intermediaries busy last year.

Kansas City, Mo.-based Lockton Cos. Inc., for one, expanded its international reach in August with its $170 million purchase of Alexander Forbes International Risk Services, the London-based arm of South African broker Alexander Forbes Ltd.

A few months later, Alexander Forbes said that a consortium of private equity investors made a $1.1 billion offer to buy the publicly traded Johannesburg, South Africa-based brokerage.

In September, Alliant Insurance Services of Newport Beach, Calif., agreed to pay $100 million to buy the U.S. property/casualty and employee benefits retail brokerage business of London-based Jardine Lloyd Thompson Group P.L.C.

JLT had been in preliminary discussions the month prior to acquire rival London-based Health Lambert Group, but Heath pulled out of those talks, saying only that a merger would not have been in the best interest of its staff or clients.

Also mulling over new ownership, Briarcliff Manor, N.Y.-based brokerage USI Holdings Corp. said in October that it had formed a special committee of outside directors to review a buyout offer it received from an unnamed private equity firm.

But perhaps the biggest deal among brokers during 2006 was a deal that wasn't.

Overture rejected

A source confirmed to Business Insurance in October that Willis Group Holdings Ltd. made an informal offer to acquire the world's largest broker--Marsh & McLennan Cos. Inc.--three months earlier. The move was an apparent effort to capitalize on MMC's challenges following its 2004 fraud and bid-rigging suit and settlement with New York Attorney General Eliot Spitzer.

Although sources saw the deal as a real possibility since it involved financing from private equity powerhouse Kohlberg Kravis Roberts & Co., others say regulators likely would not have approved such a merger, considering that the combined brokerage would control an estimated 40% of the marketplace.