Although Laura Mazzuca Toops, editor of our sister publication, American Agent & Broker, reported in our November edition that the red-hot agency acquisitions market had slowed, deals involving E&S/specialty lines brokers and insurers continued at a furious pace for most of the year before then.

Laura's report from the Eighth Annual Summit Meeting of the Target Market Program Administrators Association in Tempe, Ariz., said that in spite of a slowdown stemming from shriveling capital and a dwindling pool of candidates, smart buyers and sellers could still work out profitable deals where combinations make strategic sense and transactions are well planned.

Similar advice was revealed in a number of articles we published in our newsletters this year.

“While principals at some excess and surplus lines brokerages might believe their primary perpetuation goal is to negotiate the best prices they can for their shops, successful acquirers say their primary focus is making sure the merging cultures mesh,” we reported in our October edition in an article titled, “Cultural Fit Helps Drive E&S Broker Merger Success.”

Starting off the year with articles in our March and April editions advising sellers about the selection of deal partners and advisers, along with more specific advice about private equity deals from PE executive themselves, even then there were predictions about a possible deal slowdown and declines in lofty multiples being paid.

But in our earliest reports, including our March article, “Private Equity Deals No Automatic Exit For Sellers Of Wholesale Brokerages,” the forecasts were balanced by pronouncements about competition among PE firms to put capital that had already been raised for acquisitions to work in 2008.

Also in our April edition, executives from firms that were some of the hottest prospects for PE firms and other acquirers–program managers–offered warnings about situations to avoid in that month's feature article: “Program Managers Warn Of Unwanted M&A Consequences.”

“Selling out may seem like a lucrative proposition for program managers being wooed by carriers, but those who sign on to high-priced acquisition deals are in danger of killing their entrepreneurial spirit,” veteran program administrators warned, according to our account.

Even specialty insurance carriers themselves voiced concerns about M&A activity heating up in the E&S/specialty sector. In a companion piece, we noted that some carriers, focusing on deals in which one wholesale broker or managing general agency buys another, said that when they were blindsided by such deals, relationships with acquired firms could cease.

Putting all the warnings and advice aside, our monthly newsletters revealed a string of deals that hadn't ended even after the most recent edition was delivered.

Earlier this month, Bermuda-based AXIS went all the way to Australia to pick up an MGA called Dexta Corporation Pty. In late November, Columbus, Ohio-based State Auto Mutual, an insurance group primarily engaged in writing personal auto insurance, said it agreed to acquire Rockhill Insurance, a specialty property-casualty group also based in Columbus.

Throughout the year, deals by U.S firms were fueled by factors, such as falling insurance prices and motivations, to diversify products and expand beyond U.S. borders, while a weak dollar had foreign buyers eyeing takeovers of U.S. specialists in 2008.

After Munich Re said it would buy The Midland Company for $1.3 billion in October 2007, the M&A floodgates opened.

The following deals were announced in late 2007 and early 2008 and reported on in E&S/ Specialty Lines Extra this year.

DECEMBER 2007:

o ACE Ltd. said it would buy Combined Insurance Company of America from Aon for $2.4 billion.

o American Financial Group became majority shareholder in Marketform Group Limited, a Lloyd's insurer.

JANUARY 2008:

o QBE Holdings Inc. announced a $146 million deal for Michigan-based North Pointe Holdings Corp..

o HCC Insurance Holdings, Inc. acquired Indianapolis-based MultiNational Underwriters, LLC.

o Atlanta-based wholesaler Swett & Crawford Group said it acquired another wholesale brokerage, Risk Reducers, LLC, a workers' compensation specialist

o A.J. Gallagher & Co. picked up AVRECO, a wholesaler and MGA from The Park Group.

FEBRUARY 2008:

o Meadowbrook Insurance Group announced a $273 million merger deal with ProCentury, closing the deal in July.

MARCH 2008:

o Bermuda-based Argo said its subsidiary, Trident Insurance Services, acquired the MGA Massamont Insurance Agency Inc.

o Philadelphia Consolidated Holding Corp. of Bala Cynwyd, Pa., acquired Gillingham & Associates, which specializes in commercial insurance for the outdoor recreation and hospitality industries

APRIL 2008:

o Farmington Hills, Mich-based Burns & Wilcox said it would form a new business entity with C.J. Coleman & Company, a London-based wholesaler.

o Bermuda-based Argo Group International Holdings made a $272 million cash offer to buy Heritage Underwriting Agency, Plc, a Lloyd's insurer, wrapping the deal up in May.

JUNE 2008:

o Canton, Mass.-based OneBeacon Insurance Group agreed to buy Entertainment Brokers International Insurance, an MGA specializing in entertainment, sports and leisure industries.

o Hudson Insurance Group in Stamford, Conn. said it would acquire Hooghuis Group LLC, an underwriting agency specializing in U.S. directors and officers liability insurance.

JULY 2008:

o Japanese insurer Tokio Marine Holdings said it is buying Philadelphia Consolidated Holding Corp. for $4.7 billion.

o Bermuda-based Allied World Assurance Company Holdings agreed to buy Darwin Professional Underwriters Inc., a U.S. specialty insurer, for $550 million.

o Bermuda-based Ironshore proposed to buy Lloyd's Syndicate 4000 and Pembroke Managing Agency from Chaucer for about $34 million.

o American International Group Inc. said it acquired Ascot Underwriting Holdings Ltd., the managing agency of AIG's Lloyd's Syndicate 1414.

o First Reserve Corp., a Greenwich, Conn.-based private equity firm, put $720 million into launching Torus Insurance, an insurer targeting energy risks.

o Kansas City, Mo.-based Rockhill Insurance Company acquired National Environmental Coverage Corporation.

o Seattle-based SeaBright Insurance Holdings said that its wholesale broker subsidiary, PointSure Insurance Services, has acquired three wholesale broker divisions of Black/White Group.

AUGUST 2008:

o New York-based Tower Group Inc. said it plans to acquire CastlePoint for about $490 million

SEPTEMBER 2008:

o Tower Group said a CastlePoint subsidiary will acquire White Plains, N.Y.-based Hermitage Insurance for $135 million.

o CRC Insurance Services Inc. acquired Sumter, S.C.-based Southern Risk Operations, LLC.

o Hallmark Financial Services acquired 80 percent of Heath XS, LLC for $15 million.

Special Reports /

#5: M&A Deals Rise In Specialty Sector

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