After years of contraction, the agency-brokerage mergers andacquisition market could be on the verge of a comeback. Accordingto a recent Advisen study, the big global brokers in 2010 will bekeen to acquire smaller rivals hurt by the contracting commercialproperty-casualty market.

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Although the agency M&A market has seen its boom times,activity has slowed dramatically, with transactions down 40 percentfrom last year, according to Richard Schlicher of Gill and RoeserHoldings Inc., who is interviewed in this month's cover article onpage 28. The lack of bank and private equity players, who played asignificant role in fueling the M&A booms of previous years,plays a large part of this trend. In other words, agency M&Aactivity, like most other business deals, is a victim of agenerally poor economy that had been contracting years before thebig recession exploded late last year.

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At the same time, IIABA's updated Best Practices study foundthat 2 years of a soft market and a poor economy have significantlydeteriorated independent agencies' return to shareholders. A scoreof 20 translates into a shareholder return of 15 to 16 percent,which is about right for a well-run agency. Those with less than $5million in revenue saw their scores drop from 25.6 to 14.4. Foragencies with revenue of more than $5 million, the score droppedfrom 24.2 to 13.4. This deterioration could suggest that there arefewer attractive potential acquisitions in the M&A pool–or thatmore agencies have an incentive to put themselves on themarket.

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It's no surprise that the global brokers (and insurers, for thatmatter) recognize the success of the middle-market business modeland are trying to make it their own, both through businessconcentration and the acquisition of well-managed, profitableagencies that specialize in this business. Advisen is predictingthat even a poor economy won't stop this from happening–because theopportunities for organic growth are diminished and because theincreasingly sophisticated insurance needs of middle-marketcommercial customers are a perfect fit with the global capabilitiesof the big brokers.

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Ironically, this increased focus on yet more consolidation alsoprovides opportunities for successful start-up businesses and smartsmaller agencies, according to Madelyn Flannagan, IIABA's vicepresident of agent development, education and research. Commentingon the latest Best Practices study, she said that despite therecession, no “Best Practices” agency has gone out ofbusiness–although about a dozen are no longer around because theywere either acquired or merged with others.

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No matter if the M&A bull charges again, your business willdo well if you run it like you're trying to attract one of thosebig buyers–a smart approach in any market.

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