In an attempt to grow its insurance business nationally, Marsh & McLennan Agency LLC (MMA), a subsidiary of insurance broker Marsh & McLennan Companies Inc. (MMC) announced the acquisition of Thomas Rutherfoord, Inc., one of the highly-regarded brokerage firms in the U.S. The terms of the transaction, however, remain undisclosed.
With this acquisition, MMA will now contain annual revenue of $171 million to become the 13th largest insurance agency in the U.S. The deal is expected to mutually help both the companies grow their individual strengths. Further, the acquisition will enhance MMC’s coverage while building its client relationship through Thomas Rutherfoord in the mid-Atlantic region, where the latter is densely penetrated by its teamwork orientation, employees’ expertise and disciplined financial performance.
Founded in 1916, Thomas Rutherfoord has annual revenues of $81 million, more than 300 employees and 10 offices located from Philadelphia to the Gulf Coast region. It is the 32nd largest brokerage firm and 14th largest independently owned firm in the U.S.
Estimate Revision Trend
Over the last 30 days, one of 12 analysts covering the stock has lowered estimates for the first quarter of 2010, while no upward revisions were witnessed. Currently, the Zacks Consensus Estimate for the first quarter is pegged at 51 cents per share, which would be up by 26.7% from the year-ago quarter.
However, the only downward estimate revision for the first quarter indicates a likelihood of downward pressure on the performance of the stock in the near term.
With respect to earnings surprises, the stock has remained steady over the last four quarters, with three positive surprises. The average remained positive at 24.5%. This implies that MMC has surpassed the Zacks Consensus Estimate by 24.5% over that period.
The downside potential for the estimate in the first quarter, essentially a proxy for future earnings surprises, currently stands at 3.9%.
MMC’s fourth quarter adjusted earnings of 38 cents per share were a penny ahead of the Zacks Consensus Estimate and also up from 36 cents reported in the year-ago quarter. Results were aided by strong margin improvement in the Risk and Insurance Services as a result of improved profitability at Guy Carpenter and were offset by increase in expenses, lower interest and investment income and the strengthening of the U.S. dollar.
MMC’s rapid growth is mainly attributed to its aggressive merger and acquisition (M&A) strategy. We expect MMC to grow inorganically with the acquisition of Thomas Rutherfoord along with previous acquisitions such as Guy Carpenter, Mercer and Oliver Wyman Group, although Kroll (MMC’s corporate investigations wing) has been auctioned that proved to be a poor strategic fit for MMC. Despite sluggish organic growth, MMC’s M&A growth makes it a dominant organization in the industry.
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