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New insurance broker targets middle market

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FRANKLIN, Tenn.--Another startup insurance brokerage fueled by private equity capital has embarked with the goal of becoming a major middle-market player.

Franklin, Tenn.-based based Synercon Insurance Holdings was launched last week by industry veterans Kenneth H. Pinkston, former chairman and chief executive officer of Willis Group Holdings Ltd.'s North American operations in Nashville who retired in 2001; and David D. Haynes, former chairman and CEO of Synaxis Group Inc., who left the Nashville, Tenn., brokerage in late 2004.

Primus Capital Funds, a Cleveland-based private equity firm, is providing the capital to fund Synercon, which plans to acquire $200 million in revenues over a five-year period, Mr. Haynes said. He declined to say how much Primus invested in Synercon.

The formation of Synercon comes on the heels of the launch of San Mateo, Calif.-based upper middle-market brokerage Edgewood Partners Insurance Center. Greenwich, Conn.-based Stone Point Capital and Edgewood founders Dan F. Francis and John G. Hahn secured $100 million in private equity funding (BI, July 16).

Synercon plans to employ a "hub and spoke" acquisition strategy to build out a national platform to supply middle-market customers--defined as accounts with up to $250,000 in revenues--with commercial property/casualty insurance and employee benefits services.

Synercon will acquire agencies with at least $7.5 million in revenues to serve as regional hubs, then provide the funding and expertise to assist those hub agencies in acquiring producer teams and smaller agencies in the $1 million to $1.5 million revenue range within the hub's region.

"But what we really are looking for, aside from size, is quality management teams that want to remain in the business and would like the opportunity to grow their firms," said Mr. Haynes, who is Synercon's CEO.

The acquisition plan is the same strategy Mr. Haynes used to build Synaxis, which he formed in 1998. In 2006, the last year figures were available, Synaxis ranked as the 42nd-largest broker of U.S. business, with $54.3 million in 2005 brokerage revenues, according to Business Insurance's annual rankings.

Mr. Haynes left Synaxis in November 2004 after he and Synaxis' chief financial officer were placed on administrative leave for reasons the brokerage never divulged.

Mr. Haynes declined to elaborate about the issue and said "it's certainly not part of Synercon" and that potential clients have nothing to be concerned about.

Synercon Chairman Mr. Pinkston is optimistic about its chances of achieving its goal of acquiring $200 million in revenue in five years.

"One of the big surprises," Mr. Pinkston said, was finding the number of high-quality firms that fit Synercon's strategic profile operating in the market today. While not all would be interested in joining Synercon, given their sheer number, "we'll be able to accomplish our objective," he said.

Timothy J. Cunningham, a principal with OPTIS Partners L.L.C. in Chicago, said, however, that given the consolidated marketplace, Synercon may not find acquisitions easy to come by.

"Clearly, if their strategy is to grow through acquisitions, there's a limited inventory and a large number of buyers vying for the same inventory," Mr. Cunningham said.

Rob Lieblein, managing director of Hales & Co. in Harrisburg, Pa., said that while a "hub and spoke" strategy "clearly can work," the challenge is going to be in integrating and finding consistent workflows, synergies and cultures from all the different acquired firms, and in managing and overseeing the production of new salespeople who may join the firm in a "spoke" office.