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MMC's Unit Buys Security Insurance - Analyst Blog
Yesterday, Marsh & McLennan Companies Inc. 's ( MMC ) Marsh & McLennan Agency LLC (MMA) announced the acquisition of a leading Wisconsin-based Security Insurance Services Inc. The acquisition expands MMA's, and eventually MMC's, insurance and employee benefits coverage. However, the terms and financials details of the deal remain concealed. MMA is a subsidiary of MMC's leading insurance brokerage wing - Marsh Inc.
Armed with annual revenues worth $10 million, Security Insurance targets the clients in the Midwest by offering an array of property-casualty (P&C) and employee benefits services and products. The company also offers specialty services within the senior health care, construction and manufacturing industries. Post the acquisition, Security Insurance will be integrated with RJF Agencies of upper Midwest, which was acquired by MMA in January 2011. The latest acquisition is another attempt by Marsh & McLennan to consolidate its manpower resources in order to expand its clientele.
Acquisitions Inducing Growth
Moreover, MMA is pursuing consistent expansion through inorganic growth. Last month, MMA acquired Progressive Benefit Solutions, which was preceded by the acquisitions of the employee benefits division of Kaeding, Seitlin Insurance, Ernst & Co. and Gallagher Associates Inc. in November last year. Following the acquisition of Security Insurance, MMA has acquired about 19 firms since November 2009, which includes Prescott Pailet Benefits LP (PPB), Insurance Alliance, The NIA Group, Haake Cos., Thomas Rutherfoord Inc., Bostonian Group and Kinloch Boston. These acquisitions have also enabled MMA to generate about $365 million in annualized revenue. The acquisitions are a part of MMA's long-term growth strategy to build a national platform that serves the P&C insurance and employee benefits needs of the companies across the US.
Further, after the successful asset disposition of its redundant Kroll and Putnam units in 2010, the acquisitions bode well for the overall restructuring of Marsh & McLennan. The acquisition is also crucial for new business generation and client retention, which faces substantial declines due to the company's antitrust litigation charges coupled with a soft-pricing environment.
However, despite the acquisition related costs, Marsh & McLennan posted impressive first quarter 2012 results on account of top-line growth in all lines of businesses and higher investment income. Even lower operating and tax expenses supported margin growth. In addition, a stable outlook affirmation from the ratings agencies boosts the optimism about Marsh & McLennan's credibility and operating leverage.
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, thus eliminating any significant risk from the company's financial leverage.
Overall, as a leading global broker, Marsh & McLennan has a history of outperforming its peers banking on its size, diverse product offering, global presence and technical expertise. Despite the sluggish organic growth, the company is still a dominant player in its industry, quite next to the leading Aon Corp. ( AON ).
Currently, Marsh & McLennan carries a long-term Neutral recommendation and a Zacks #4 Rank, which translates into a short-term Sell rating.
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