Applied Net 2015: Smaller brokers told to take long-term approach to M&A

Smaller brokers must focus on "life after the deal" in order to compete against the likes of Arthur J Gallagher and private equity-backed rivals in the booming mergers and acquisition environment.

That is the view of Sarah Lucas, vice president at M&A advisory firm Marsh Berry, who was speaking at the Applied Net conference in Las Vegas on 19 October alongside fellow VP Tom McDonald in a session exploring organic and inorganic growth in the US market.

During the session, which focused on how sustainable industry growth can occur organically or via acquisition, Lucas suggested that a "feeding frenzy" has ensued amid a lack of an internal perpetual strategy among selling firms and an "overabundance of buyers".

Capital
She also highlighted the fact that PE-backed brokers currently dominate the M&A landscape and that PE houses now "have so much capital they can't even disperse it all".

In total, 289 M&A deals have been completed within the US insurance industry so far this year, compared to 320 for the whole of last year.

Lucas stated that her firm has been seeing "a lot of very large agency transactions this year", with figures produced by Marsh Berry showing Gallagher - whose international business has previously completed a string of high-profile deals in the UK - rank sixth on the list of top US insurance industry acquirers with 12 deals (4.2% of total market deals) in 2015 to date.

Challenges
However, she claimed that, although smaller rivals face myriad challenges in terms of competing for acquisitions, there remain ways of using their size to their advantage.

She explained: "The challenges for smaller brokers are around finding targets and nurturing opportunities - firms like Gallagher have dedicated teams to secure a pipeline [of deals].

"The big competition have invested millions on platforms.

"The key is around life after the deal and to continuing to operate in the way in which the business was run beforehand."

Timescale
Also outlining timescale as a crucial element for smaller brokers to consider, Lucas added: "It is crucial to focus on the deal process and not to let it drag.

"When a deal begins to languish it allows the seller to get cold feet and for another buyer to come in."

Meanwhile, McDonald urged firms to consider a combination of M&A and organic growth as a long-term driver of sustainability.

"You can grow without acquiring but you can't grow without writing new business," he said, adding that it was important to aim for organic growth year-on-year at a rate of 20%.

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