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2018 brokerage revenue: $2.01B
Percent increase (decrease): 8.2%
Brown & Brown Inc. continued to pursue a disciplined acquisitions strategy in 2018 while it looked to strengthen expertise and build talent across its business.
The Daytona Beach, Florida-based brokerage announced the most acquired revenue in the history of the firm in 2018 — $323 million in annualized revenue — taking its 2019 brokerage revenue up 8.2% to $2.01 billion and moving the brokerage to No. 7 in Business Insurance’s 2019 ranking, up from No. 8 in 2018.
Brown & Brown made 23 acquisitions last year, the largest of which was the $700 million acquisition of Minneapolis-based Hays Group Inc. in the fourth quarter of 2018, according to J. Powell Brown, the brokerage’s president and CEO.
Hays, which had significant portfolios of property/casualty and employee benefits business, strengthened Brown & Brown’s employee benefits capabilities and was a “very good fit culturally,” Mr. Brown said.
“We had a large employee benefits presence and wanted to further expand it, and this is complementary to what we were trying to build,” he said.
The deal added 750 staff to Brown & Brown and there was no consolidation of offices, Mr. Brown said.
“We’re investing in all four segments of our business — retail, national programs, wholesale and services. Last year we did an acquisition in all four of those segments,” Mr. Brown said.
So far in 2019, Brown & Brown has made 11 acquisitions, representing more than $40 million in annualized revenue, Mr. Brown said.
“We would consider any firm that fits culturally and makes sense financially whether it was $5 million of revenue, or $200 million like Hays,” he said.
Amid ongoing merger and acquisition activity across the industry, the competition for brokerages continues to drive high valuations, but Brown & Brown continues to take a disciplined approach, according to outside analysts.
“For a good portion of 2018, Brown & Brown wasn’t necessarily doing a lot of deals. Deals were either expensive or somehow didn’t fit within the company,” said Elyse Greenspan, director of equity research for property/ casualty insurance at Wells Fargo Securities LLC in New York.
“We saw a little bit of a slower start to the year, and then (acquisition activity) did pick up with Hays and other acquisitions in the back half of last year,” she said.
“We believe Brown & Brown is exercising some discipline around price and culture, making sure there is a fit with respect to their acquisition activity,” said analyst C. Gregory Peters, a managing director in the equity research department at St. Petersburg, Florida-based Raymond James & Associates.
Brown & Brown’s growth strategy, like that of many brokerages, is “a combination of both organic growth and acquisitions,” said Mr. Brown.
Across its four divisions, Brown & Brown’s organic revenue growth was 2.4% in 2018. Organic growth for the retail segment was 3% in 2018, while national programs declined 0.9%, wholesale grew 5.7%, and services grew by 3.4%.
Claims-processing revenue from catastrophe events in 2018 was lower than 2017.
“Brown & Brown’s 2017 results did include some upside in and around the flood-related revenue that ran during the year that did not repeat in 2018,” said Ms. Greenspan. Brown & Brown is a service provider for the National Flood Insurance Program.
When isolating the decrease in flood claims revenue in 2018 compared with 2017, Brown & Brown “grew approximately 4% for the year,” said Mr. Brown.
Economic growth is driving brokerage revenue growth, while rate increases in some lines are a positive development, Mr. Brown said.
“We have lots of commission business, and we have some fee business, so if we did have rate pricing pressure that would benefit us slightly; but we’ve always said that exposure units such as payrolls, sales, number of vehicles, number of employees, impact our business more than rates,” said Mr. Brown.
Acquiring talent to add to the brokerage is a greater challenge, he said.
“Our greatest challenge and our greatest asset are the same thing — it’s talent. The economy as it slows down will come back at some point. The biggest challenge in opportunity for us is getting and retaining more high-quality teammates,” said Mr. Brown. “We’re continuing to look for more talented people who can help us solve or deliver solutions to our customers.”
2018 brokerage revenue: $1.38B