Merger and acquisition activity in the global insurance sector is bouncing back after a two-year decline, according to global law firm Clyde & Co, and the US insurance industry is no exception to the trend. A PwC report revealed that deal value in the insurance sector reached $28.6 billion in the first two quarters of 2018, compared to $10.1 billion over the same period last year. While AXA’s $15.4 billion acquisition of XL Group had a lot to do with this performance, insurance broker deals have been the most active, according to PwC, accounting for 87% of announced deal volume.
No-one needs to tell Brown & Brown Insurance about the results – the sixth largest insurance broker in the US has been on its own M&A streak this year, acquiring 10 companies totaling $50 million since the start of 2018. Its chief acquisitions officer shed light on what’s driving M&A strategy for 2018.
“Brown & Brown consistently looks to expand our geographic reach and product offerings in all four of our divisions: retail, programs, wholesale and services,” said Scott Penny. “Mergers and acquisitions are central to our growth strategy, demonstrated by the more than 500 agency acquisitions in our history. While every opportunity needs to make financial sense, cultural fit is equally important.”
In fact, the company has placed significant emphasis on ensuring its new business partners are the right fit and acquiring attitude over assets.
“Our company is built on individual initiative and a ‘can-do’ entrepreneurial attitude that translates into the delivery of superior customer service,” explained Penny. “We are looking for agencies that keep their customers’ best interest top of mind, and who treat their teammates and carrier partners with the utmost respect. Our operating model is quite simple – deliver insurance solutions with high levels of service, maintain your entrepreneurial spirit and hang on to what makes you successful, continue to realize financial rewards, and have fun. We are a meritocracy and our teammates are rewarded for their accomplishments, rather than their pedigree.”
Some of Brown & Brown’s recent mergers and acquisitions include Health Special Risk, Automotive Development Group, and Professional Disability Associations, to name a few. As these and other companies have become a part of the broker’s business, creating a smooth transition post-acquisition often begins before any deal moves forward.
“Prior to extending an offer, we spend a lot of time getting to know one another and making sure that all parties understand their role and go-forward expectations. Once new teammates know there is a place for them at Brown & Brown, their leader is staying on board, and their compensation and benefits are comparable, the transition becomes easier,” said Penny.
The Brown & Brown executive also has a few key takeaways for other businesses in the insurance sector developing their own M&A strategy.
“Anyone can write a check, but capturing the hearts and minds of key teammates is an art. Teammates drive your balance sheets, and the question should be, what are you doing to keep them engaged and enthusiastic?” said Penny. “The best deals ensure that one plus one equals three, or even more. If that isn’t true, don’t do it. Keep in mind the interests of your shareholders, teammates, customers and carrier partners, and develop a clear transition plan with all of them in mind.”
Meanwhile, the future growth strategy for Brown & Brown will involve more M&A, if a company is the right fit.
“Brown & Brown’s strategy is to deploy our capital back into the business by making internal investments, allowing us to take care of our customers and grow organically. We will also continue to reward our shareholders through dividend distributions and, opportunistically, buy our stock back,” Penny told Insurance Business. “We will continue to expand through acquisitions when we find agencies that fit culturally and make sense financially, which will help us achieve our next intermediate goal of $4 billion in revenue.”