Culture seen as heart of successful M&As

CHICAGO — Finding the right cultural fit should be the cornerstone of merger and acquisition strategies across all industries, said a top executive at a leading acquirer in the insurance brokerage sector.

With M&As likely to accelerate, acquiring companies should take an unemotional approach that focuses on the details of the deals and getting to know the key leadership at the target company, said J. Powell Brown, CEO of Brown & Brown Inc.

While risks are inherent an any transaction, adopting an acquisition strategy that looks beyond the numbers can reduce those risks, he said.

“We are in an unprecedented time because there is so much dry powder out there chasing a finite number of deals,” Mr. Brown said during the keynote address at the Hays Symposium in Chicago on Wednesday.

Brown & Brown bought Hays Group Inc. in a $730 million deal last year.

Daytona Beach, Florida-based Brown & Brown has completed more than 500 deals since 1993, and the key to successful deals is finding the companies that will fit well with the acquiring company, Mr. Brown said.

“We believe fundamentally that it’s all about cultural fit. Period,” he said.

Brown & Brown, therefore, always insists on direct and open access to principals of the businesses they are looking to acquire, regardless of whether a business broker or investment banker is involved, Mr. Brown said.

“We always want unfettered access to the senior leadership team. If we don’t have unfettered access to the senior leadership team, we walk away,” he said.

The Brown & Brown team also considers softer issues such as whether they would want to socialize with the executives at firms they are acquiring, and consider whether the executives have their “head and the heart” in the sale, Mr. Brown said. “The leadership group delivers the team, and we spend a lot of time around that.”

Due diligence is also key, and making frequent transactions helps a management team develop a “rhythm” and learn from past mistakes, he said.

Once deals are completed, the acquiring company needs to address three main issues that will concern employees of the acquired firm: will they have a job, will they receive the same pay and benefits and will they report to the same people?

After those issues are addressed, “they can learn about your culture,” he said.