Brokerlink consolidates Vector

Listed broker consolidators Canada Brokerlink Inc. and Vector Intermediaries Inc. have announced their intention to merge operations with netpremium volume of $277 million. The newly formed corporation — expected to retain the Brokerlink brand name — will trade shares with existing Brokerlink stakeholders on a 2.5 to 1 basis, while existing Vector shareholders will receive stock 1 for 1. The new company’s volume elevates itself to contender status against top Canadian network Equisure Financial Services Inc., which expects this year’s volume to rise to $325 million.

Jon Ouellette, Brokerlink’s vice president of operations, stresses the transaction is not an attempt for the company to threaten Equisure’s status but rather to increase the organization’s reach geographically. While both Vector and Brokerlink serve some common regions — particularly Alberta and Ontario — Vector has established operations in Eastern Canada, an area that was a part of Brokerlink’s long-term strategy. Ouellette contends that while Brokerlink has been eyeing Vector from an acquisitional standpoint for some time, serious negotiations only began in early 1999 when the company was considering Vector president Gordon Campbell to fill its now-vacant chief executive officer post. “Gordon (who helms the new company) had the right plan with Vector and the company was turning itself around. The fact that Gordon was taking Vector to profitability, the combination of his ability and our management crew will bode well for the emerging company,” Ouellette predicts.

Campbell says the new entity is not sizing up to compete against the Equisure model, a company which has expanded its reach into other financial services. He says the new company will remain only in the brokerage business, and will amalgamate its brokerages in similar regions in order to create profitable efficiency savings. “In the long term it makes more sense to create profitability by becoming more efficient than it does to start going into other financial services. We should get as good at what we are doing as we can, and maximize our marketshare position.” Campbell says he will bring with him the same strategy he employed at Vector, “we will emphasize personal lines and the identification of activities to reduce transaction costs in a matter that is consistent with providing good service at the end of the day”.

Ouellette says Vector’s non-traditional approach to marketing insurance attracted Brokerlink to the consolidator. “They were embarking into business sectors that are not yet very profitable but that have tremendous long-term potential such as Save-Smart (group insurance kiosks) at Wal-Mart.”

The merger teams Dominion of Canada General Insurance Company, which has an equity stake in Brokerlink, with CGU Group Canada Ltd. which provided a $20 million loan facility to Vector in late 1998 alongside options to purchase shares. Both Ouellette and Campbell insist the insurers are agreeable to the merger, and that the organization could attract other insurer investors down the road.

CONSOLIDATOR SNAPSHOT

1998 RESULTSVector Brokerlink

Revenues$15.4 million$23.4 million

Net Income($8.7 million)($1.53 million)

1999 Premium Volume$90 million$187 million