NEW YORK–Caution and selectivity were the words used to describe the acquisition strategy being employed by three chief executives of privately held brokerage firms at a recent insurance conference here.
The comments came during a panel discussion here this week at the Standard & Poor's “Insurance 2008 Conference: Operating Within a Global Economy.”
Martin P. Hughes, chairman and chief executive officer of Chicago-based Hub International, said his brokerage has two goals in mind when it looks at an acquisition: footprint and margin. He noted that Hub has an established footprint now, so he is more concerned with the margin when considering a deal. He said that if he feels a deal will not build more margin, then he will not execute it.
Both Mr. Hughes and John Howard, president and CEO of Roseland, N.J.-based Crump Group Inc., said they do not feel pressure to acquire or merge, and Mr. Hughes cited that lack of pressure as a benefit of being a private broker.
Mr. Howard said his brokerage is looking for opportunistic acquisitions. He said it is not about trying to expand into any more geographical regions for Crump so much as whether an acquisition will help the brokerage be more successful with respect to a particular product or service.
Michael J. Sicard, chairman, president and CEO of USI Holdings Corp., based in Briarcliff Manor, N.Y., said the firm is concentrating now on organic growth to supplement the acquisitions it has made.
The brokers agreed that acquisitions in the brokerage world have a lot to do with people, and bringing those people into a certain culture. Mr. Howard explained, “When we acquire firms, we get people and relationships and not a lot else.”
Mr. Sicard said that looking at acquisitions is similar to looking at prospects and clients in that a brokerage should not just do whatever it can to get people in the door. If the people that make up a potential acquisition do not want to be part of the established culture of the purchasing brokerage then that is something to consider.
Mr. Hughes said he is concerned more with the sales force that is being acquired than with the management team. He added that he does not worry too much about the technical aspects of a deal, but instead focuses on locking up the producers.
Speaking regionally, Mr. Hughes said he does not see much opportunity right now in the U.S. for acquisitions. Part of the reason is that the pricing for an acquisition is too high, he noted, adding that he will not do a deal until the pricing comes down from where it is. He said he sees more opportunity for acquisitions in Canada, and that he will likely expand there.
The brokers also spoke to the advantages of working with private equity partners as opposed to going public. Crump's Mr. Howard said his brokerage has flourished by not having to deal with the “distractions” of public companies.
USI's Mr. Sicard expanded on this by noting that he has experience in both areas. He was with Willis when the brokerage went private and then public again. Now, at USI, he is not as worried about short-term results as much as doing things that he knows will be beneficial in the long term. He noted that Goldman Sachs, USI's private equity partner, generally sticks to five-year planning, which helps USI focus on longer-term objectives.
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