GRAND RAPIDS — Two acquisitions to start 2017 give Lake Michigan Insurance Agency a wider presence across the state to drive growth and pursue further deals in an era of industry consolidation.
A subsidiary of Grand Rapids-based Lake Michigan Credit Union, the insurance agency moved into acquisition mode last year and aims to close two to four deals annually, and perhaps more “if it’s really good,” said President Kenneth Jansen.
Lake Michigan Insurance plans to pursue acquisition prospects that represent common insurance carriers, and to target deals in markets across the state where parent Lake Michigan Credit Union has a branch presence.
“We’ve taken the approach of local presence and being part of the community. We want brick and mortar in communities,” he said. “As the credit union keeps growing and going in different geographic areas of the state, we’ll be there.”
Lake Michigan Credit Union has 37 offices across the state, concentrated primarily in West Michigan. The branch network includes three offices in suburban Detroit — Farmington Hills, Troy and Livonia — and one in Traverse City.
The credit union ended 2016 with $4.82 billion in total assets, a 15-percent increase from a year earlier. Lake Michigan Credit Union had 293,851 members to end the year, up from 270,750 at the end of 2015, according to a quarterly financial statement filed with federal regulators. Net income for the year totaled $84.9 million.
Lake Michigan Credit Union formed the insurance subsidiary in 2011 when it acquired a small agency Jansen co-owned in Grand Rapids. Lake Michigan Insurance Agency generated $52 million in revenue from premiums in 2016 on the sale of personal and commercial policies to credit union members and nonmembers, Jansen said. He anticipates revenues of $56 million or more in 2017.
The agency closed on four acquisitions in the last year, two of which took effect Jan. 1, 2017. They were for a firm in Walled Lake north of Detroit and for the Katt Insurance Agency in Belmont.
Last year, the company acquired the Minor Field Agency of Kalamazoo in August and Bonner Insurance Agency Inc. in Traverse City in March.
The acquisitions of the last year grew Lake Michigan Insurance to five offices, with locations in Grand Rapids, Belmont, Traverse City, Kalamazoo and Walled Lake.
Jansen expects Lake Michigan Insurance, which employs 42 people, will close two more deals in 2017. The agency wants to make acquisitions at a rate such that the acquired agencies are readily absorbed without stressing operations or staff, he said.
“When you do this, you want to make sure you hit the ground running on all cylinders,” Jansen said.
The agency scouts for acquisition prospects primarily through personal and professional networks, Jansen said. Each of the deals in the last year included keeping the management team and employees to run the business locally and retain clients.
“You want to have as little disruption as possible,” Jansen said. “We want those owners to stick around as long as possible because the retention rate is higher.”
Lake Michigan Insurance Agency’s pursuit of further deals comes as the insurance brokerage industry continues to consolidate steadily, led by Caledonia-based Acrisure LLC that in 2016 closed more than a deal a week.
Chicago-based Optis Partners LLC reported 449 mergers and acquisitions involving insurance agencies in the U.S. and Canada last year. That’s down slightly from the 456 reported in 2015 but still far more than the second-best annual M&A volume going back to 2000.
“The agency M&A world remains very active, with aggressive buyers and plenty of sellers. Interest rates remain low but are starting to slowly move upward, and money is readily available for investing in the insurance broker community,” according to a quarterly report on M&A activity from Optis Partners. “For agency owners waiting for the ‘right time to sell’ before jumping on the bandwagon, be careful not to let the last one pass you by. This remains a seller’s market likely for the near term future, but it won’t last forever.
“In many ways, what we have been experiencing over the past couple years is a ‘perfect storm’ for the benefit of sellers. Like all storms, they eventually pass and calm returns.”
Acrisure was by far the leading acquirer in 2016, closing 63 deals. That compares with 56 in 2015 and 22 in 2014 for the company, which in November completed a $2.9 billion management-led buyout of San Francisco-based private equity firm Genstar Capital.
At the time, CEO Greg Williams told MiBiz the high acquisition volume that Acrisure pursued with the backing of Genstar Capital would continue after the buyout and actually could accelerate.
“The appetite’s not going to change other than it may actually increase,” Williams told MiBiz last fall.
Hub International, which operates an office in Grand Rapids, was the second-largest acquirer last year with 45 deals, according to Optis Partners. Among the top 10 acquirers in 2016, seven were backed by private equity.