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A Race to the Fiscal Cliff Finish Line

An Unprecedented December Caps a Record Year

By  Phil Trem

The Times Square ball dropped. The clock struck midnight. The champagne was flowing. Some were reveling in their successes of 2012, others were thinking about their resolutions for 2013. The insurance distribution M&A space took a collective breath and reveled in its many accomplishments.

The year turned out to be the largest year for deal count in history with a total of 312 deals completing prior to the feared Fiscal Cliff. 2012 eclipsed the prior annual record from 2008 in which 297 transactions were completed. The feared increase to capital gains taxes turned out to be a reality when, as expected, Congress allowed the federal capital gains rates to climb to 20% for individuals with taxable income greater than $400,000.

The market was even busier than anticipated with a total of 24 deals in November and an unprecedented 64 transactions in December compared to 17 and 34, respectively, in 2011. Arthur J. Gallagher continued to lead the way with a total of 11 deals completed during this two month time frame. They ended the year with 35 deals in the United States more than doubling their total of 17 from the prior year.

AssuredPartners, new to the buyer party as of late 2011, made a splash this year finishing in 2nd place with 25 deals completed including a combined 10 transactions in November & December. Some of these transactions were foundation acquisitions and others were bolt on or spoke acquisitions made by one of their four platforms.

Hub International rounded out the top 3 with a total of 9 deals completed in the final months of the year bringing their annual total to 22 deals. One of these acquisitions developed a new platform in Oklahoma with the acquisition of CFR, Inc. based in Tulsa.

Brown & Brown (“B&B”) and Marsh & McLennan Agency (“MMA”) finished the year in a 5th place tie with an annual total of 12 deals. B&B finished the year strong with a total of six deals in the final two months. MMA ended the year with five transactions in the last two months, including the formation of their Midwest hub with the acquisition of Brower Insurance Agency headquartered in Dayton, Ohio.

While in the midst of this transaction frenzy and what may certainly have been a first, three of our top ten buyers in 2012 actually sold/recapitalized themselves in the 4th quarter while continuing to complete transactions.

- Confie Seguros Insurance Services completed seven deals in the last few months of the year for a total of eighteen deals in 2012 (4th in total deals). Their private equity partner Genstar Capital sold their majority interest to Boston based ABRY Partners.

- USI Holdings Corporation completed two deals in December bringing their annual total to eleven transactions. Their private equity partner Goldman Sachs sold their majority interest to Canadian based Onex Corporation (7th in total deals).

- Digital Insurance completed two deals in November bringing their annual total to eight deals. They were acquired by Fidelity National Financial, the nation’s largest title insurance company (8th in total deals).

Rounding out the top ten are CBIZ and NFP with eight and six deals respectively.

With such a frenetic finish in 2012 and changes in tax implications for sellers, we will likely see some slow down from December’s numbers. However, the deal multiples do not appear to be going down and agency owners are still viewing an external perpetuation as a viable succession plan. When the champagne bottles dry up, we expect to see deal activity restart in 2013 with a steady pace.

Securities offered through MarshBerry Capital, Inc., Member FINRA and SIPC.

Disclosure: All deal count metrics are inclusive of completed deals with U.S. targets only. Scorecard year-to-date totals may change from month to month should an acquirer notify MarshBerry or the public of a prior acquisition. Please feel free to send any announcements to M&A@MarshBerry.com .

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