On Monday, Marsh McLennan (NYSE: MMC), the insurance brokerage, said it has agreed to buy smaller rival McGriff Insurance Services for $7.75 billion, as the industry gears up for higher spending on policies from businesses amid an improving economic outlook.
Wage growth and increasing expectations of a soft landing have allowed companies across different sectors to revive spending on insurance policies despite higher prices, boosting commissions earned by brokerages tied to the premiums insurers charge.
Marsh McLennan (NYSE: MMC) expects the deal, struck through its Marsh McLennan Agency business, to enhance the unit’s capabilities across commercial property and casualty, employee benefits, management liability, and personal insurance lines.
“Strategically, the transaction makes sense to us as it will further expand its successful middle-market insurance business,” Piper Sandler analyst Paul Newsome said. “This appears to be a business Marsh knows well.”
Late last year, insurance broker Aon (NYSE: AON) also agreed to buy privately held NFP in a deal valued at about $13.4 billion to tap the fast-growing middle-market segment.
Founded in 1886, McGriff is an affiliate of TIH Insurance Holdings and a provider of insurance broking and risk management services in the U.S.
The company generated $1.3 billion in revenue for the trailing 12 months ended June 30, 2024. Its coverage also includes corporate bonding and surety services, and cyber and title insurance, among others.
The insurance sector, typically considered recession-proof, has been posting steady revenue growth this year, in contrast with other financial firms that are facing the brunt of market fluctuations and macroeconomic headwinds.
Marsh McLennan expects to close the cash deal by the end of the year, funding it with a combination of cash and proceeds from debt financing.
“Marsh McLennan is already a dominant insurance broker for large companies and this deal should strengthen their middle-market reach in the areas of risk advice, risk transfer, and risk control and mitigation solutions,” said Michael Ashley Schulman, partner and chief investment officer at Running Point Capital Advisors.
After the transaction closes, the McGriff team of more than 3,500 employees, including CEO Read Davis, will join Marsh McLennan Agency and will continue to operate from their existing office locations.
Marsh McLennan (NYSE: MMC) shares were down marginally in morning trading. The stock has gained about 18% this year, while the benchmark S&P 500 is up 20% over the same period.
In the most recent quarter, Marsh McLennan’s revenue climbed 6% while adjusted earnings per share rose about 10%.
(Source: ReutersReuters)
