Consolidation activity picking up?

It's taken more than a year but Marsh & McLennan Agency L.L.C. has finally begun to announce some deals.

Although the news today that it has acquired Insurance Alliance, a $15 million revenue agency based in Houston, is a bit anti-climactic given all the speculation over the past year, it is one of several acquisitions Marsh & McLennan Agency will make before the end of the year as it builds out a national platform.

“We've got more than one announcement to make before the end of the year,” David Eslick, chairman and CEO of the agency, told me. “We will be announcing more hubs before the end of the year.”

As part of Marsh & McLennan Agency's “hub and spoke” strategy, it plans to acquire regional platform or “hub” agencies first before it begins to fold in other “spoke” agencies within a particular region. Mr. Eslick said that in order to launch a new region, a hub agency must have at least $10 million in revenue.

Insurance Alliance will serve as the hub for Marsh & McLennan Agency's Southwest operations.

If the Marsh agency were to make just two more “hub” acquisitions of comparable size before the end of the year, it would end 2009 with $45 million in revenue--enough to almost place it within the Top 50 largest brokers of U.S. business, according to Business Insurance's most recent rankings.

“Going into 2010, on a stand-alone basis, we will be a very sizable operation,” Mr. Eslick told me. He also said that we can expect the agency to make even more acquisition announcements in 2010.

So is the merger and acquisition activity within the brokerage marketplace finally picking up?

From what I am told the answer is “yes.” After a lackluster year of deal making in 2009 as a result of the global financial crisis and disconnect in pricing between buyers and sellers, activity is predicted to pick up in 2010.

Not only are buyers and sellers adjusting their pricing expectations, but the continuing soft market is putting pressure on publicly held and private equity owned brokers to start buying revenues again, I'm told.

There are a lot of firms in the $20 million to $100 million space that will ultimately be consolidated, one person noted.

With that said, word on the street is that Aon Corp. is close to announcing a deal to buy Jericho, N.Y.-based broker Allied North America, the 27th largest broker of U.S. business with $88.1 million in brokerage revenues in 2008.