What buyers look for in a brokerage

Information technology is one driving force behind mergers and acquisitions involving property and casualty insurance brokerages.

Acquiring new products, talent and technology are among the reasons behind M&A activity in P&C insurance, said Georges Pigeon, a Montreal-based partner with KPMG’s transaction services group. “Increasingly if I look back over last the 10 to 15 years, nowadays technology is a greater consideration in the mix,” Pigeon said in a recent interview.

“Some buyers may have a heavy focus on the technology that is being deployed in an organization and they may see it as a quicker route to implement technology in their own organization, rather than spend a number of years – along with the risks –  in developing internally their own technology.”

Pigeon advises both buyers and sellers in mergers and acquisitions.

“An acquirer may choose to jettison its own IT platform and migrate all of its business on to the acquired’s platform,” Pigeon said.

Brokerage principals thinking of selling the business should hope for the best but should also understand potential repercussions, such as “change of control” clauses in contracts with vendors, said Pigeon.

“The buyer may have a very different technology provider and IT is often a place where significant savings can be achieved, given its pervasiveness in the back office,” Pigeon said. “You would want to understand what those arrangements are, how easy it is to terminate them, and whether there would there be a cost involved.”

Sometimes, the cost of terminating contracts early can be onerous, Pigeon suggested. He was commenting in general and not on any deal in particular.

The Canadian P&C industry rang in the new year with several new merger announcements.

Effective Jan. 1, Challenge Insurance Group Inc. of Edmonton and Toronto Insurance and Financial Group (TIFG) Inc. have joined Intact Financial Corp.’s BrokerLink unit.

Intact announced that deal the same day that Arthur J. Gallagher & Co. announced its acquisition of Jones Brown Inc.

Itasca, Ill.-based Gallagher, widely viewed as the fourth-largest P&C brokerage in the world, has more than 30 locations in Canada. Jones Brown, which places both commercial and personal insurance, has offices in Vancouver, Calgary, Toronto and Hamilton.

Another recent cross-border deal was Hub International Ltd.’s acquisition of Montreal based commercial brokerage Forum Risques.