Expanding its employee benefits coverage, yesterday, Marsh & McLennan Companies Inc.‘s (MMC) Marsh & McLennan Agency LLC (MMA) announced the acquisition of a leading Virginia-based KSPH LLC. However, the terms and financials of the deal remain concealed. MMA is a subsidiary of MMC’s leading insurance brokerage wing – Marsh Inc.
Armed with $5 million in annual revenue, KSPH taps middle market clients to offer an array of employee benefits and retirement plan services. Post the acquisition, KSPH will be integrated with Thomas Rutherfoord Inc., which was acquired by MMA in March 2010. The latest acquisition is another attempt by Marsh & McLennan to pool in its manpower resources in order to expand its clientele base.
Acquisitions Inducing Growth
Moreover, MMA is pursuing consistent expansion through inorganic growth. Earlier in November last year, MMA acquired the employee benefits division of Kaeding, Seitlin Insurance, Ernst & Co. and Gallagher Associates Inc. Following the acquisition of KSPH, MMA has acquired about 17 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 $340 million in annualized revenue. The acquisitions are a part of MMA’s long-term growth strategy to build a national platform that serves the property and casualty insurance and employee benefits needs of the companies across the US.
Further, after the successful asset disposition of its redundant Kroll and Putnam units last year, the acquisitions bode well for the overall restructuring of Marsh & McLennan. The acquisition is also crucial for new business generation and client retention, which has been facing substantial declines due to the company’s antitrust litigation charges coupled with a soft pricing environment.
However, despite the acquisition related costs, Marsh & McLennan came out fairly well from the fourth quarter of 2011, posting improved 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. Besides, the recent stable outlook affirmation from the ratings agencies further raise optimism on 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, thereby 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 due to its size, diverse product offering, global presence and technical expertise. Despite sluggish organic growth, the company is still a dominant player in its industry, quite next to the leading Aon Corp. (AON).
Additionally, Marsh & McLennan carries a Zacks Rank #3, translating into a short-term Hold rating and long-term Neutral stance.
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