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Sunday, 26 November 2017 15:50

Fifth Third seeks opportunities in consolidating insurance market

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Greg Carmichael, CEO Fifth Third Greg Carmichael, CEO Fifth Third

GRAND RAPIDS — As consolidation among independent insurance brokers accelerates across the country, Fifth Third Bancorp Inc. is pushing deeper into the industry through acquisitions.

The leading bank in the West Michigan market, Fifth Third Bancorp (Nasdaq: FITB) has closed two acquisitions this year for agencies that sell property and casualty policies and provide employee benefits. The latest was the September deal for Epic Insurance Solutions Agency LLC and Integrity HR in Louisville, Kentucky. 

The Cincinnati, Ohio-based Fifth Third is “actively looking for opportunities where it makes the most sense for us” across a 10-state footprint, CEO Greg Carmichael told MiBiz during a recent visit to Grand Rapids. Markets such as West Michigan and Detroit “are at the top of the list for those opportunities,” Carmichael said.

Building out a broader insurance brokerage business through its wholly owned subsidiary, Fifth Third Insurance Agency Inc., is part of a corporate strategy to diversify revenues with additional service lines for business customers, he said.

“It’s a natural fit to the things we offer our commercial clients as a portfolio of solutions,” Carmichael said. “It’s about adding value to the relationship.”

For example, when Fifth Third finances a new commercial building, it can refer the owner to the insurance brokerage subsidiary for property and casualty coverage, or refer a new commercial borrower for business policies, he said.

“We’re the largest bank, obviously, in West Michigan and we have literally hundreds of commercial relationships where we’re the senior (lender) and we’re the lead bank. So to be able to say, ‘We can do that for you’ and then have to deal with just Fifth Third and not somebody else, that goes a long way,” Carmichael said.

Fifth Third previously acquired R.G. McGraw Insurance Agency Inc. in Cincinnati in September.

The corporation is interested “in finding the right opportunities that fit into our business model” and in acquiring property and casualty insurance agencies whose owners want to remain after a sale and continue to operate and grow the business, Carmichael said.

“You have to have an agency who basically sees the value and wants to be part of a larger institution that can provide the opportunities for them to continue to expand their business,” he said. “Anytime you do an acquisition, one of the things that’s very important is the people. It’s the most important part. So we want to make sure that (with) acquisitions we do, the people fit into our model, and the town fits into our model, and they want to be part of a bigger entity.”

CONSOLIDATING MARKET

Fifth Third Bancorp pursues that acquisition strategy as M&A activity among insurance brokerages in North America so far in 2017 has already surpassed the level of 2016.

Chicago-based Optis Partners counts 457 transactions in the U.S. and Canada this year as of Sept. 30, a deal volume that exceeds the previous annual record of 456 for all of 2015, “with no end in sight of the buy-side appetite or sell-side supply of insurance broker acquisition activity.”

“2017 will be another record-setting year for M&A activity in the insurance-broker space, fueled by aggressive buyer valuations, in particular from PE-backed buyer groups, and the plentiful supply of agency principals needing to complete their exit strategies,” according to a third quarter report from Optis Partners on insurance brokerage M&A.

The third quarter alone had 132 transactions, the third-highest level ever behind the first and second quarters of 2017.

As it has the last few years, Caledonia-based Acrisure LLC, which has been pursuing an aggressive M&A strategy in a highly fragmented industry, led the consolidation activity nationally. Optis Partners reported that through the third quarter, Acrisure closed on 71 acquisitions, exceeding the number of deals in each of the two previous full years. That’s also nearly twice the number of deals by the second-largest acquirer, Hub International, which closed on 36 acquisitions through the third quarter.

Acrisure closed on 63 deals in 2016 and 56 transactions in 2015, according to Optis Partners, and by all appearances intends to maintain an aggressive pace of M&A.

The company recently announced it was offering senior notes totaling $725 million to $925 million. The amount raised will go to pay off second lien notes, cover related fees and “continue our strategic acquisition activity in 2018 and beyond,” said Adam Reed, executive vice president and chief legal officer at Acrisure. 

“We are acquisitive by nature,” he said, noting that Acrisure expects to close on 100 acquisitions in 2017.

Acrisure a year ago completed a $2.9 billion management-led buyout of San Francisco-based private equity firm Genstar Capital.

TRANSACTIONS CONTINUE

In the 12 months from the third quarter of 2016 to the third quarter of 2017, Acrisure closed on 90 acquisitions, according to Optis Partners, which counted 563 transactions overall in North America during the period. That compares with 468 in the prior 12-month period.

In West Michigan, Lake Michigan Insurance Agency, a division of Grand Rapids-based Lake Michigan Credit Union, also has been pursuing acquisitions that follow the credit union’s branch footprint across the state.

Lake Michigan Insurance most recently acquired the 110-year-old Muskegon Insurance Agency. That deal followed four prior acquisitions, including a Detroit-area agency and the Katt Insurance Agency of Belmont in January, Minor Field Agency of Kalamazoo in August 2016 and Bonner Insurance Agency Inc. in Traverse City in March 2016. 

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Mark Sanchez

Senior Writer

msanchez@mibiz.com

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