NU Online News Service, Dec. 16, 2:53 p.m. EST

Brown & Brown broke with its tradition of acquiring small accounts to announce it will purchase managing general agency Arrowhead General Insurance for $400 million.

The Daytona Beach, Fla.-based insurance broker made the announcement early this morning after finalizing the deal yesterday.

Under terms of the agreement, Brown & Brown will pay the private equity owners, Spectrum Equity Investors V, L.P., $395 million cash for the firm. An additional $5 million will be paid out over a three year period provided Arrowhead achieves certain financial targets.

Brown & Brown says it will finance the transaction with a combination of $195 million cash and $200 million in term loans that it is in the process of securing.

Arrowhead is expected to generate $105 million in revenue by the end of this year, Brown & Brown says.

The firm is most noted as a profitable online insurance exchange that allows retail agents with small volume business to place risks with an MGA.

Chris Walker, CEO of Arrowhead, says the firm is a “very, very efficient” organization dealing with around 3,100 retail agencies in more than 5,900 locations nationwide and has over 250,000 policies in force.

While the firm is national in scope, it does have a concentration of business in the West, a geographic location that has not been a strength for Brown & Brown, which does a significant amount of its business in Florida.

J. Powell Brown, chief executive officer of Brown & Brown, says Arrowhead will not be folded into any other operations within the firm and will continue as a standalone operation, noting its success in that capacity. He indicates that there were no plans for cuts as a result of the acquisition and “there is good opportunity to expand the business.” He added that he felt Brown & Brown would be able to add products and services to Arrowhead's business.

On a conference call today, an analyst asked if this deal would affect Brown & Brown's acquisition strategy in the future. Brown says it would not.

“Game on,” says Brown. “It will be business as usual.”

As for Arrowhead's executives, Brown & Brown says the following moves will be made:

Chris Walker will be named a regional executive vice president of Brown & Brown and will continue as CEO of Arrowhead.
Mac Armstrong, Arrowhead's current chief financial officer and chief operating officer, will be promoted to president of Arrowhead.
Steve Bouker will continue as president of the residential earthquake program, which he created for Arrowhead.
Lewis DeFuria will continue as president of special risk for Arrowhead.
Stephen Boyd will continue to serves as president of Arrowhead's commercial lines.
Scott Marshall will continue to serve as president of American Claims Management Inc., (ACM) a third-party claims administrator and subsidiary of Arrowhead.
All of the executives will join Brown & Brown's leadership council.

Arrowhead and ACM will continue to operate from their current locations. Alexander Anthony Insurance, LLC, an Arrowhead subsidiary, will continue to operate at its Salt Lake City, Utah, location.

Under terms of the deal, if the transaction is not completed by Feb. 13, 2012, either party could terminate the agreement. There was no mention in a filing with the Securities and Exchange Commission of any penalty to be paid as a result.

During the conference call, analysts appeared to be generally pleased with the transaction, some congratulating Brown.

In mid-morning trading, Brown & Brown's stock was up 10 cents a share to $21.86.

Special Reports /

Brown & Brown Acquires MGA Arrowhead for $400m

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