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Mergers and acquisitions of agents and brokers surged in late 2012


Announced mergers and acquisitions of insurance agents and brokers in the United States and Canada totaled nearly 300 transactions in 2012, with nearly one-third occurring in the fourth quarter alone.

2012 started out as a good year on the M&A front, but it did not telegraph that it would be the biggest year this century with 291 transactions compared with the previous high of 285 in 2008.

While 2012 M&A activity started at a slower pace than 2011, concern that the “Bush tax cuts” would not be extended provided strong motivation to close deals by the end of 2012. Sellers appear to have read the tea leaves correctly as the expected 33% increase in the capital gains rate, rising from 15% to 20%, took effect on Jan. 1 of this year.

In addition, the new 3.8% Medicare surtax on capital gains for certain high-income individuals provided significant incentives for sellers to close deals before the end of the year. Depending on the circumstances, some sellers could have suffered a net reduction in after-tax sale proceeds of nearly 10% if they closed this year rather than last year. It is no surprise, therefore, that 2012 was a stellar year for deals.

Public brokers and private equity-backed buyers had the greatest gains in the number of M&As during 2012, but private brokers still led in total deals completed for the year.

Public broker Arthur J. Gallagher & Co. led all buyers with 30 announced deals in 2012, followed by three private equity-backed firms: Hub International Ltd., 21 deals; Confie Seguros Insurance Services, 18; and Assured Partners Inc., 17. Public broker Brown & Brown Inc. rounded out the top five with 15 deals announced.

Public brokers had the biggest increase in number of transactions at 14 and percentage increase at 26%, although the public equity-backed firms were close behind with an increase of 11 deals and 14.7%, respectively (see chart).


The biggest decline in M&A activity was among bank-owned firms. Wells Fargo & Co. completed five transactions in 2011 but none in 2012.

The only firm in the category that did more than two deals was Western Financial Group, which did five transactions in 2012 vs. seven in 2011.

In addition, there were fewer private broker transactions announced during 2012, perhaps due to competitive pressure as private firms were unable or unwilling to compete with public and private equity-backed buyers.

It also is instructive to look at the makeup of the firms that were sold.

Property/casualty and property/casualty-employee benefits firms continue to dominate the M&A marketplace. Given significant uncertainty in the employee benefits world due to the Patient Protection and Affordable Care Act, it is interesting that the number of employee benefits deals did not decrease materially.

Other than 2009 and 2010, when such transactions were at or near their lowest point since 2000, the 67 and 66 employee benefits deals in 2011 and 2012, respectively, were only marginally lower than the 70 deals in 2008.

A potential motivating factor for employee benefits-focused firms was the need to affiliate with a buyer having significant added value and other resources to be able to compete in the changing marketplace in the wake of the 2010 health care reform law.


There were also several large sales during 2012, including:

• Brown & Brown's acquisition of Arrowhead General Insurance Agency Inc.

• Assured Partners' acquisition of Dawson Cos.

• Gallagher's acquisition of Schiff Kreidler Shell Inc.

• Payne Financial Group acquired Western States Insurance.

• BB&T's acquisition of Crump Group.

• Fidelity National Financial Inc.'s acquisition of Digital Insurance.

Finally, we saw movement in several private equity-backed firms:

• Onex Corp. (Canada) replaced Goldman Sach Group Inc.'s investment in USI Insurance Services.

• KKR & Co. L.P. bought Blackstone Capital's interest in Alliant Insurance Services Inc.

• Genstar Capital sold its ownership in Confie Seguros to ABRY Partners.


Looking to the future, there likely will be a modest pullback in deals in 2013 as the active buyers digest what they acquired late last year and early this year.

Further, sellers will need to adapt to the lower after-tax proceeds they will receive as it is unlikely buyers will be willing to pay 10% more for the same businesses today that they could have bought in 2012.

A big unknown is what may happen with the employee benefits-focused firms and whether the significant activity of the past few years will continue as a result of or in spite of PPACA.

There likely will be additional recapitalization activity with private equity-backed firms as many liquidate their investments five to six years after making them.

As with the last few years, 2013 will nevertheless be interesting on the mergers and acquisitions front.

Timothy J. Cunningham is managing director at Chicago-based Optis Partners L.L.C., an investment banking and financial consulting firm that serves the insurance distribution industry.