Brokerage Stocks Down; M&A Activity Continues at Strong Pace but Slower Than 2007

Stock Prices: The brokerage sector as a whole is down 3 percent for the year. Among middle-market brokers, Arthur J. Gallagher’s (NYSE:AJG) stock has faired well compared to peers Brown & Brown (NYSE:BRO), down 16.6 percent, and Hilb Rogal & Hobbs (NYSE:HRH), down 23.4 percent. Gallagher’s stock is up 7 percent year-to-date. In addition to being very acquisitive, the company announced, during the first quarter, that it signed a definitive agreement to sell substantially all of its reinsurance brokerage business to Aon Corp. (NYSE:AOC) with initial proceeds of $31.8 million in cash.

M&A Activity: Brokerage mergers and acquisitions continues on a strong pace, with 80 transactions announced through May 2008. However, this is slightly below the 2007 pace, when 89 transactions were reported for the same time period. Arthur J. Gallagher remains extremely active as the top acquirer of agencies in 2008. Gallagher has announced 13 acquisitions this year (approximately 16 percent of all the announced transactions in the sector), including two acquisitions in May of agencies in Missouri and New Jersey. Brown & Brown does not lag far behind Gallagher, with 11 transactions of their own (approximately 13 percent of the transactions in the sector). Like Gallagher, Brown & Brown also announced two acquisitions in May. Both agencies acquired by Brown & Brown are located in California.

Several large transactions took place in the brokerage sector during April. Munich Re acquired Roanoke Cos. Inc., the holding company of Roanoke Trade Services Inc., a marine insurance underwriting agency and broker. Roanoke was established in Chicago in 1935 and operates as an underwriting manager and broker of marine business. The company is represented by 11 branches in nine U.S. states, with approximately 180 employees; its head office is in Schaumburg, Ill. The company has licenses in all 50 states. In 2007, its income from fees totaled $22 million and the premium volume it placed as a broker was approximately $100 million. The purchase price represents 52.5 percent of Roanoke’s total premium volume.

BB&T Insurance Services has reached an agreement with Union Bank of California, N.A. (NYSE:UB) to purchase its San Diego-based insurance subsidiary, UnionBanc Insurance Services Inc. With 369 employees, UnionBanc Insurance Services operates offices in Pleasanton, San Rafael, Stockton, and Roseville in Northern California; San Diego, Irvine, Fullerton and Glendale in Southern California; and Portland, Ore. It is the 31st largest insurance broker in the nation.

First Financial Holdings Inc. (Nasdaq:FFCH) announced that its subsidiary, First Southeast Insurance Services Inc., acquired the operations of The Somers-Pardue Agency Inc., a Burlington, N.C.-based independent insurance agency. Established in 1946, Somers-Pardue is one of the largest independent agencies in the Carolinas. The initial purchase price is $18.8 million, with contingent earn-out provisions over the next three years.

According to First Financial’s SEC filing, Somers-Pardue has annual commissions from both business and personal insurance sales of approximately $9 million. Somers-Pardue is a multi-line agency that writes business and personal insurance with specialization in property management and employee benefits.

Topics California Trends Mergers & Acquisitions Agencies A.J. Gallagher