Expanding its employee benefits coverage, yesterday, Marsh & McLennan Companies Inc.’s (MMC) leading insurance brokerage wing, Marsh Inc. announced that its subsidiary, Marsh & McLennan Agency LLC (MMA) has acquired the employee benefits division of Kinloch Holdings Inc. in Boston. However, the terms and value of the deal remains undisclosed.
In 2007, Kinloch Holdings established Kinloch Consulting Group Inc. in Boston in order to tactfully handle the complex employee benefits needs of the middle market employers.
Meanwhile, contributing about $2.0 million to annual revenues, Kinloch Boston will be merged into Bostonian Group that MMA had acquired in May last year. The amalgamation is expected to enhance the company’s employee benefit capabilities along with efficient property and casualty insurance products in Boston.
Hence, the acquisition appears to complement well with Marsh & McLennan’s insurance brokerage operation, which provides risk management and insurance broking, reinsurance broking and insurance program management services for businesses, public entities, insurance companies, associations, professional services organizations and private clients.
The Inorganic Way
Moreover, MMA is pursuing consistent expansion through inorganic growth. Following the acquisition of Kinloch Boston, MMA has acquired ten firms since November 2009, which includes Insurance Alliance, The NIA Group, Haake Cos., Thomas Rutherfoord Inc., and Bostonian Group. 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 companies across the US, where it enjoys the 12th largest agency position with about $290 million in annual revenues.
Further, after the successful asset disposition of its redundant Kroll and Putnam units, 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 2010, posting improved results on account of top line growth in all lines of businesses and reduced expenses. These were partially offset by lower investment income along with increased tax expenses.
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 on 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).
While the Guy Carpenter brand, holding a quarter of the market share, has been improving through cross-selling opportunities, new business production and high retention rates; Mercer’s investment consulting and management wing continues to generate robust growth, contributing to the fundamental strength of the company. We believe a stable economy and improvement in the insurance cycle should help boost both the insurance brokerage and consulting business.
Currently, Marsh & McLennan carries a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation, indicating no clear directional pressure on the shares over the near term.
AON CORP (AON): Free Stock Analysis Report
MARSH &MCLENNAN (MMC): Free Stock Analysis Report
Zacks Investment Research
