Marsh Inc. Bags RJF Agencies - Analyst Blog

Expanding its presence in the Midwest region, Marsh & McLennan Companies Inc.'s (MMC) leading insurance brokerage wing, Marsh Inc. announced that its subsidiary, Marsh & McLennan Agency LLC (‘MMA') has acquired the largest independent insurance company – RJF Agencies Inc. However, the terms and value of the deal remains undisclosed.

Based in Minneapolis and with about $25 million in annual revenues, RJF provides property and casualty insurance and employee benefits to middle market companies. On the other hand, MMA is the 12th largest insurance agency in the US with annual revenues of $285 million. While the acquisition will add to MMA's revenues, all of RJF's employees and leadership team are also expected to join Marsh's unit.

Hence, the acquisition appears to complement well with MMA's insurance brokerage segment, which provides risk management and insurance broking, reinsurance broking and insurance program management services for businesses, public entities, insurance companies, associations, professional services organizations and private clients.

Further, MMA is also pursuing consistent expansion through inorganic growth. Besides RJF, MMA has acquired several firms including the most recent Trion Group Inc. and Strategic Benefit Solutions Inc. Marsh's subsidiary MMA has also acquired five more firms since November 2009, namely, Insurance Alliance, The NIA Group, Haake Cos., Thomas Rutherfoord Inc., and Bostonian Group.

The acquisitions are a part of MMA's long-term growth strategy to build a national platform serving the property and casualty insurance and employee benefits needs of the companies across the US.

Further, after the successful asset disposition of its redundant Kroll and Putnam units, the acquisition bodes well for the overall restructuring of Marsh & McLennan.

While the company is able to concentrate on its core efficiencies, Marsh & McLennan's unutilized $1.0 billion revolving credit facility along with expected tax benefits in the upcoming quarters shall provide cushion to the company's liquidity, thereby eliminating any significant risk on the company's financial leverage.

The acquisition is also crucial for new business generation and client retention, which has been facing substantial declines due to the company's antitrust litigation charges coupled with a soft pricing environment. Moreover, RJF will benefit Marsh with its strong regional presence, strong leadership abilities, sales-oriented culture and the blend of property and casualty and employee benefits business.

Overall, as a leading global broker, Marsh & McLennan has a history of outperforming its peers due to its size, diverse product offering, global presence and technical expertise. Despite sluggish organic growth, the company is still a dominant player in the industry, next to the leading Aon Corp. (AON).

While the Guy Carpenter brand, holding a quarter of the market share, has been improving through cross-selling opportunities, new business production and high retention rates; Mercer's investment consulting and management wing continues to generate robust growth, contributing to the fundamental strength of the company. We believe a stable economy and improvement in the insurance cycle should help boost both the insurance brokerage and consulting business.

 
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