Brokers looking to sell their brokerages must be committed to “making the numbers work” in order to keep their business in the broker channel.
“The thing that our major competitor outside the channel has done is that they have raised the bar on the cost,” said Mike Brien, president and CEO of Macdonald Chisholm Trask Insurance, which recently acquired Homburg Insurance Company Limited in Atlantic Canada.
Homburg Insurance Company Limited is an insurance brokerage with offices in Halifax and Truro, Nova Scotia. In Truro, it operates under the name C.D. Armstrong Insurance.
Macdonald Chisholm Trask Insurance, owned by Macdonald Chisholm Incorporated, is among the largest independent insurance brokerages in the region. The firm has offices in numerous communities within Nova Scotia, New Brunswick, and Newfoundland.
Homburg approached Macdonald-Chisholm to make a deal that will keep Homburg within the independent broker channel. Insurance Business asked if the acquisitions contained any useful lessons for brokers who wished to sell their business within the channel.(continued)#pb#
To snap up a brokerage before competing directs do, the numbers need to make sense, Brien said.
“What I had to do with Homburg was to make a deal that made sense to both of us, and ultimately we did that,” he said. “You have to make the math work.
“I always use the expression, ‘Two and two make five.’ That’s how it has to be. Otherwise it’s tough to justify doing [the sale]. Depending on the circumstances, there are ways you can make it work, but you have to work at it.”
Brien said high multiples put pressure on independent brokers. “As independents, we have to be able to compete and still be attractive to a major seller,” he said. “At the same time, you can’t put yourself into a position where you can’t get a return on your investment – or worse, not get your investment back.”
This is easier said than done, given the resources at the disposal of direct writers. The high multiples of brokerages provide an advantage to the directs that acquire them, because the directs can then add brokerage profitability to their underwriting revenue. Brokers, on the other hand, do not have access to underwriting revenue.
For Jamie Wentzell, CEO of Homburg International Group, the time seemed right to make a deal.
“Homburg Insurance has been a very successful company for us,” Wentzell said. “But as a small independent, the timing was right for us to exit from owning an insurance brokerage. As well, this transaction is in line with our go-forward planning to consolidate our energies and resources in the traditional areas of real estate investment, management and development."
Brien said Homburg has roughly a 50-50 split between personal and commercial lines, and a good loss ratio across all of its lines of business. “What I liked about the brokerage was that it has good people and it has some good business,” he said. “It has offices in two locations where we are already located also. There will be some consolidation.”
Ultimately, Homburg will be re-branded as Macdonald Chisholm. It remains to be determined exactly when this happens. In Truro, C.D. Armstrong would likely be re-christened MCP Armstrong.
