The acquisition by Wells Fargo & Company of Wachovia Corp., which secured Federal Reserve approval last week, puts the company on track to be the fourth-largest insurance broker in the United States, one consultant noted.
The deal–worth more than $15 billion at the time of its announcement, when Wells Fargo was trading at $35.16 a share on Oct. 2–would not only merge the pair's banking businesses but also bring together their substantial insurance brokerage operations.
This presents a "great opportunity" for Wells Fargo to expand its footprint and establish itself as not only the largest bank-owned insurance brokerage firm but also the fourth-largest U.S. insurance broker, surpassing Arthur J. Gallagher, according to Robert J. Lieblein, managing partner with Hales & Company in Harrisburg, Pa.
He said San Francisco-based Wells Fargo is well known for cross-selling to its customers, creating even greater opportunities "to take the Wachovia insurance practice and incorporate it into the Wells Fargo culture."
There may be some overlap in insurance brokerage services in some areas of the Southeast and Mid-Atlantic, but overall, the merger will mean a significant expansion of insurance brokerage territory for the combined firm, Mr. Lieblein said.
In 2005, Wachovia acquired Palmer & Cay, doubling the insurance revenues of the bank, he pointed out, while making it a national broker and putting it in the same business league as Wells Fargo with midmarket and some large-market accounts.
"I look at what Wells does from coast to coast, and they are extremely strong throughout the nation," he said.
While Wells Fargo might slow down its agency acquisitions as it works through the integration of Wachovia, he suggested, that does not mean they will stop buying new agencies. Indeed, last week Wells Fargo Insurance Services announced it had acquired EMAR Group, headquartered in Livingston, N.J., with an office in Florida. Terms of the deal were not released.
EMAR serves middle-market and upper-middle-market clients, with a concentration in transportation, construction, real estate and financial institutions. It also has access to specialty market programs in small-business niches, including the limousine services and restaurant industries.
While there are some integration risks, Mr. Lieblein pointed out that Wells Fargo did a very good job of integrating ABD Insurance Services with its operations when Wells Fargo acquired Greater Bay Bancorp in 2007. He said Wells Fargo, with that experience, should have a leg up on putting a large merger together.
Last year, Wachovia reported insurance revenues of $422 million, while Wells Fargo reported just under $1.3 billion, noted Mr. Lieblein. Wachovia has 42 insurance offices in 20 states, while Wells Fargo has 171 offices in 37 states.
Gallagher and Wells Fargo were close in size, but this acquisition will clearly put Wells Fargo in fourth place, according to Mr. Lieblein.
"Assuming they can integrate this well and adopt some of the Wells Fargo cross-selling culture, I think this is a tremendous opportunity for Wells Fargo," he said, adding that one impediment to Wells Fargo growing its insurance brokerage arm along the East Coast has been a lack of bank networks.
Jim Campbell, a principal and senior vice president at Reagan Consulting in Atlanta, said Wells Fargo has "made a strong commitment to insurance, and has been actively investing in growing its insurance distribution business."
"My expectation is that it will embrace Wachovia Insurance, which represents a significant addition in terms of both revenues and capabilities," added Mr. Campbell, whose firm produces the "Best Practices" study for the Independent Insurance Agents and Brokers of America.
"From the perspective of Wachovia Insurance, I anticipate that Wells Fargo will be viewed as a desirable home that will provide stability and opportunity going forward," he said.
In late September, a deal was announced between Wachovia and Citigroup for $2.16 billion to buy Wachovia's banking services, but that would have resulted in the spin-off of its other divisions–including insurance brokerage–into a separate company.
However, Wells Fargo later emerged as the ultimate buyer, saying it had a definitive deal with Wachovia. A legal battle ensued that ended with Citigroup giving up efforts to acquire Wachovia but vowing to sue for $60 billion in damages.
In conference calls and filings with the Securities and Exchange Commission, Wells Fargo said it expects to complete the Wachovia deal during the fourth quarter. The combined companies will have $1.42 trillion in assets, $787 billion in deposits and 48 million customers, Wells Fargo said.
Representatives from both companies said they could not discuss the deal because details of the merger between the insurance services have yet to be worked out.
"It is too early to talk about specifics because details of the transaction are still being finalized," said a representative from Wachovia Insurance Services, Vince Scanlon. "However, we are excited about the prospects of combining the twelfth-largest insurance broker with the fifth-largest insurance broker."
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