Equity Market Out Of Acquisition Picture

The private equity market will no longer be a player in the mergers and acquisition arena, but large insurance brokerage firms are now the dominant players in this space, a report from Standard & Poor's said.

With cheap credit gone, private equity firms no longer have the muscle to leverage the deals they once did, such as USI Holdings Corp. and HUB International, which were purchased with a huge amount of debt, S&P said.

However, brokers–notably Aon and Willis–are making acquisition moves, highlighted by Aon's move to acquire reinsurance broker Benfield Group Ltd. and Willis' acquisition of Hilb, Rogal and Hobbs.

Marsh & McLennan Companies, the parent of insurance broker Marsh, recently hired former USI Chief Executive David Eslick, now chairman of the newly formed Marsh & McLennan Agencies, indicating the firm's interest in acquiring middle-market acquisitions.

Changes in the settlement agreement with the New York Attorney General's Office over contingent commissions allow the three brokers, barred from accepting the commissions under the agreement, to accept the contingents of acquired agencies for a limited time. S&P points out that this gives the brokers time to negotiate supplemental commissions with carriers (an increased commission schedule compensating for the lost contingents) to recapture revenues that would otherwise be lost.

A copy of the report is available through www.standardandpoors.com/ratingsdirect.