|
Business Insurance
Sally Roberts
November 17, 2003
RALEIGH, N.C.-BB&T Insurance Services Inc.'s acquisition of McGriff, Seibels & Williams Inc. not only would boost the bank-owned agency's presence among larger risk manager clients but also would propel the company up the ranks of the world's largest brokers.
Raleigh, N.C.-based BB&T, which has traditionally targeted middle- and small-market accounts, will pay up to $456 million in cash and stock for Birmingham, Ala.-based McGriff, which specializes in large commercial and energy accounts.
Risk managers will benefit from the deal, observers say, because BB&T plans to build a national platform out of McGriff's existing business, creating another large national brokerage option for buyers.
The deal, which is subject to regulatory and shareholder approval, will likely catapult BB&T into the ranks of the world's 10 largest brokers. Based on 2002 brokerage revenues, the combined entity would have ranked as the world's seventh-largest broker, with $491.5 million in 2002 brokerage revenues, according to Business Insurance's most recent ranking (BI, July 21).
It would not, though, make BB&T the first bank-owned broker in the ranks of the world's 10 largest brokers. Chicago-based Acordia Inc., which was purchased by Wells Fargo & Co. in 2000, was the sixth-largest broker in 2002.
BB&T ranked as the eighth-largest broker of U.S. business in 2002, based on brokerage revenues of $354.5 million, while McGriff was No. 13, with $137.0 million in brokerage revenues.
Executives from both companies say the deal is a good fit and allows the brokerages to achieve their common goal of expanding nationally.
''You're combining the eighth-largest insurance operation (based on U.S. business), with McGriff, which is the 13th. So, obviously, you're creating something special,'' said BB&T President Wade Reece. ''But the beauty of the combination is that the two firms are really not strategically competitive as much as they are complementary.''
BB&T is located in 11 mid-Atlantic and Southeastern states that fall within the footprint of its parent, Winston-Salem, N.C.-based bank BB&T Corp. In addition to focusing on middle-market and small accounts, BB&T derives about one-third of its revenues from its wholesale brokerage unit, CRC Insurance Services Inc., which it acquired in 2002. Birmingham, Ala.-based CRC was the nation's second-largest wholesaler in 2002, based on wholesale premium volume of $1.34 billion (BI, Sept. 8).
Mr. Reece said that the company, in determining its growth strategy, asked, ''So, if you're BB&T, what's the logical extension?''
''You'd love to have a national retail franchise, but you'd want it to be very focused, and if it were complementary, it would be perfect. We found the premiere large-account broker in the country (that allows us) to build a national retail franchise that is focused on large accounts,'' he said. Through the combination of BB&T, McGriff and CRC, the company will be able ''to bring great services to risk managers,'' he said.
Upon completion of the deal, which is expected to close in the first quarter of 2004, McGriff will operate as a wholly owned subsidiary of Branch Banking & Trust Co., a subsidiary of BB&T Corp., but will retain its name and management team. McGriff's wholesale subsidiary, Wood & Co., which has 75 employees and about $175 million in premiums, will be merged into CRC.
McGriff-which services its large commercial accounts out of four offices in Birmingham, Ala.; Atlanta; Dallas and Houston-specializes in energy and marine, construction, surety, employee benefits and public entity business, among other lines. It also operates Attenta, a workers compensation third-party administrator.
Bruce C. Dunbar Jr., chairman and chief executive officer of McGriff, said the deal is ''a really good strategic move for both companies.''
BB&T has ''a network of middle-market agents inside their footprint where their emphasis has been on cross-selling and client relationships,'' he said. ''What they see in McGriff is a vision to grow their fee-based income outside of their footprint in the large-account arena on a national basis.''
''That was our vision for McGriff as well, but the issue of taking it to the next level requires a lot of capital,'' Mr. Dunbar said. ''We're privately held, and our stock internal evaluation would not allow us to go out and pay a price for a retail agency based on what they sell for these days without being tremendously diluting to earnings for the shareholders,'' he said. ''Whereas we have the horsepower and the vision, we really needed the capital tools to take the business to the next level.''
Under terms of the transaction, BB&T Corp. will pay $50 million in cash and $304 million in stock based on its closing share price of $38.84 on Nov. 10. BB&T Corp. will issue between 7.83 million and 8.65 million shares based on the company's average closing price during a pricing period prior to closing. In addition, the deal allows for a total ''earnout'' payment to McGriff shareholders of approximately $102 million in cash over a five-year period if the brokerage exceeds certain performance targets.
Observers have only positive reactions to the deal.
''McGriff is, without question, one of the finest regional brokers in the country, with a strong capability in the energy and inland marine area,'' said John Wicher of San Francisco-based insurance investment bank John Wicher & Associates. ''BB&T has demonstrated its ability and willingness to be bold in the acquisitions it has made, and, as a result of that...companies like McGriff will remain outside the national broker's family,'' he said. ''In other words, it's not going to be part of Aon (Corp.).''
''Clearly, McGriff provides an opportunity for BB&T to be a much more significant player in the large-account arena,'' said Bobby Reagan, president and CEO of Reagan Consulting Inc., which represented McGriff in the deal. ''McGriff is going to provide the platform in which BB&T intends to expand and build a national insurance operation outside of their footprint.''
The deal is ''going to be great for the customers,'' Mr. Reagan predicted. The additional resources from a $90 billion financial institution that knows how to run an insurance operation both as a retailer and as a wholesaler and that has a commitment to grow and expand its insurance operation ''is pretty exciting to the customers,'' Mr. Reagan said.
Rob Lieblein, managing principal and president of WFG Capital Advisors in Harrisburg, Pa., said he thinks the deal will put more competitive pressure on smaller insurance agencies that do not have the same power and efficiency as larger agencies such as BB&T.
''I think it's good for the industry,'' Mr. Lieblein said. ''It's going to keep everybody focused on being good performers and on gaining efficiencies and being able to candidly look at how to continue to improve the value of their agencies in order to compete with the large mega-agencies that are out there right now.''
|
