Well-Oiled Integration Machines

Even as some brokerages have showed no rush to integrate new acquisitions, the playbook for many other deals for at least the past two decades has called for rapid integration into the owner firms.

In most cases, the acquired agency is left to do what it does best—serve the insurance and risk mitigation interests of commercial and personal customers while drumming up new business.

Experts in this acquire-and-integrate model include large, established brokerages like Hub International, Gallagher and Brown & Brown, as well as newer and growing brokerages like World Insurance Associates and Foundation Risk Partners. Their M&A playbooks are largely similar, with slight differences in the timing of branding and systems choice and migration.

At Hub, managing director of mergers and acquisitions Clark Wormer cites the firm’s practice of partnering with acquired agencies to integrate back-office functions like accounting, IT, legal and payroll. “We give them a lot of breadth in how they handle the producers and the service staff at the desk level.”

Hub is structured into 35 regional hubs, each with its own president, CFO and other C-level staff. “They decide which merger partnerships make sense and the right compensation package for the acquired entity, given differences in regional pay scales. They know their region best. We provide the revenue and back-office functions supporting them.”

Each integration is bespoke, Wormer says, tailored to the ways in which the integration will best help the agency operate and grow. “For example, some integrations take place the day after closing, some a year later,” he explains. “The integrations are tailored on a day-by-day basis by the regional hub president in consultation with the agency principals.”

Like the other brokerages, Gallagher emphasizes the resources it will provide the agency when pitching an acquisition, says Jay Eshelman, Gallagher vice president of mergers and acquisitions.

Much of that is contingent on systems integration, Eshelman says. “We make it very attractive for them to understand the value of integration—the candy store, we call it, where they can access tools and resources to get the full power of Gallagher.” Those resources range from a dedicated claims center to disaster recovery tools, among others.

Gallagher has a small change-management team that collaborates closely with leadership and the field operations staff at the acquired agency to ease integration. “By focusing on good planning and communications up front and staying in lockstep with the merger partners through the integration, we’ve been able to minimize concerns,” he says.

Vaughn Stoll, director of acquisitions at Brown & Brown, says that, over the past five years, many agency sellers have become more interested in integration. “It’s a significant change, since in 2019 they preferred to be left alone for the most part. Today, they want help and collaboration; they don’t want to be an island,” he says.

This might have to do with agency owners’ concerns about managing cybersecurity and remaining in line with new regulations on the industry, Stoll postulates.

“As a publicly traded company, we take all that very seriously and can help protect our own and our clients’ information. Good integration allows a strategy buyer to quickly assist an agency with its technology and cybersecurity needs.”

The brokerage’s integration playbook calls for back-office payroll, HR, critical accounting controls, IT and information security services to flow quickly to the agency. While Brown & Brown requires migration to its agency management system, the process may take a few months or as long as three years. “We’re flexible; we don’t want to overwhelm them with everything at once,” says Stoll. “We try to introduce the capabilities that are most important to them first.”

Since Foundation Risk Partners’ formation in 2017, its message to agency sellers has emphasized immediate post-acquisition integration, says chief acquisition officer Ben Barbieri. “Back then, we were looked upon as crazy,” he says. “Other brokerages were buying everything they could get their hands on and saying, ‘Don’t worry, we won’t touch you.’ Now, they’re struggling to integrate, and we’re not the crazy ones.”

Once an agency is acquired, its non-client-facing operations, including HR, IT, finance and accounting, and legal, as well as carrier contracts and licensing, are integrated “right away, with an emphasis on data and technology first in line,” Barbieri says, noting that Foundation Risk gives agencies the opportunity to select either Vertafore or Applied Systems management systems.

World Insurance Associates opened in 2012 with a focus on helping trucking firms find insurance and then expanded by acquiring agencies that specialize in other insurance niches. The company has a 30-person team from various disciplines encompassing human resources and accounting, among others, that focuses on integration, says Brad Unger, senior vice president of business development.

“Given our growth, I think the acquire-and-integrate model is a tried and true methodology,” he adds. “Integration will eventually happen for all acquiring brokerages; the question is when. Will I be shocked if interest rates decline and people double down on the disaggregated acquisition strategy? No. But from my perspective, it’s not a long-term, viable structure. Being fully integrated as one company gets you growing organically as well as inorganically.”