Brokerage Watch
Stock Prices:
Insurance brokers’ stocks surged in August and September despite large losses reported by many insurance companies in the wake of Hurricanes Katrina and Rita. The median increase was 10 percent compared to a 1 percent increase in June and July. With the recent gain in stock prices, five of the eight selected companies traded at 94 percent of their 52-week high or greater. Twice analysts upgraded Aon, the world’s second largest insurance broker, after reporting better than expected second quarter earnings and unveiling a reorganization plan that may save the company up to $150 million a year. Both upgrades occurred as the company’s stock price rose up 26 percent for the August and September period. Brown & Brown, whose stock was up 15 percent during August and September, was upgraded once in August and announced four acquisitions during this time.
Valuation Multiples:
At the end of July, the median price to trailing EBITDA multiple was 9.38 but increased to 10.33 by the end of September. All multiples in the sector experienced increases when compared to July numbers. The median for price to revenues increased 4 percent to 1.78. For the trailing 12 months price to earnings median increased 18 percent to 18.23. Brown & Brown is trading at a remarkable 5.02 times price to revenues. Willis and Hilb, Rogal & Hobbs are also doing well, trading at greater than two times revenues.
M&A Activity:
Activity picked up dramatically in August and September when 27 deals were announced compared to 18 in June and July. The two largest insurance brokers in the world announced in September that they would sell their wholesale units to private equity groups. On Sept. 7, Marsh & McLennan announced the signing of a definitive agreement to sell Crump to an affiliate of J.C. Flowers, a New York-based private equity firm. J.C. Flowers also acquired $78 million of Affirmative stock from Vesta in June. On Sept. 22, Aon agreed to sell Swett & Crawford to a group of private equity investors led by Hicks, Muse, Tate & Furst. Willis, the third largest broker, announced the sale of wholesale unit Stewart Smith to American Wholesale Insurance Group in February. The transaction has since closed. American Wholesale also announced signing a definitive agreement to sell a majority of its ownership to affiliates of Parthenon Capital, a Boston and San Francisco-based private equity firm. When the transaction is complete, management will continue to own a substantial portion of the firm.
Raising Capital:
The largest capital raise year-to-date was Marsh & McLennan’s September announcement that they would raise $1.3 billion in new capital. The company entered into an underwriting agreement with Citigroup Global Markets Inc. and Goldman, Sachs & Co, in which the underwriters agreed to purchase Marsh’s $550 million aggregate principal amount of 5.15 percent senior notes due 2010 and $750 million aggregate principal amount of 5.75 percent senior notes due 2015.
LMC Capital LLC is a national investment banking firm focused exclusively on the insurance industry. Services include industry-specific advisory relating to mergers & acquisitions, capital raises and valuations. The firm can be contacted at (704) 943-2600, by e-mail at Info@LMCCapital.com or visit the firm’s Web site at: www.LMCCapital.com.