So, You WantTo Be An Owner? · 2017-11-09 · October 10 - 17, 2015 marks the IICF Week of Giving....

n The Time is Now: Urgency for EMERGING LEADERS

n Internal Perpetuation NO MATTER WHAT

n Weighted Average OWNER AGES E P T E M B E R| 2 0 1 5

www.MarshBerry.com

So, You WantToBe An Owner?Successful perpetuation calls for high-performers who desire ownership. How can emerging leaders prepare?

800.426.2774 • www.MarshBerry.com

MARSHBERRY

If you want to remain independent, do something about it.

Many of your peers talk about it with their staff, their carriers and theircustomers and in the end - they sell.

If you want to remain privately held, and not just talk about it, we can help you perpetuate internally - just like we helped The Graham Company.

Securities offered through MarshBerry Capital, Inc., Member FINRA and SIPC, and an affiliate of Marsh, Berry & Company, Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 (440.354.3230).

- Bill Graham, The Graham Company

FOREVER”

“I LOOKFORWARD TO WORKING WITH YOU

letter from John Wepler

A consistent theme is emerging. Planning.Over the first three editions of CounterPoint, this theme has been woven through our pages. Planning to own your future. Creating a blueprint for success. Defining a plan for organic growth. This trend continues in this issue.To be in the minority of firms who actually perpetuate ownership internally, we believe that now is the time to dedicate effort and resources to develop a plan to continue the legacy of your company.

The September edition of CounterPoint takes a deep dive into perpetuation. We look at how emerging leaders in an agency can take the first steps to prepare for the purchase of stock. However, you can’t have young, emerging leadership in your organization if you’re not recruiting, training and developing the next generation now. We also provide a high-level look at the options for successfully passing the business to the next generation.

Finally, I want to take a moment to address philanthropy. Although it might seem out of scope — having a philanthropic culture can be a great way to recruit the next generation. Empowering your employees, and their families, to create a difference in the communities they live and work can help enrich the culture in your own organization.

If your organization is looking for an opportunity to get involved, I encourage you to research the Insurance Industry Charitable Foundation (IICF). As the Midwest Division Board Chair, I can attest to the impact that the IICF has had on not only MarshBerry — but the insurance industry as a whole. October 10 - 17, 2015 marks the IICF Week of Giving. Take a moment and read our overview on the IICF and the Week of Giving on page 11. I challenge you to look at the volunteer opportunities in your area — or to create one on your own. Send us your pictures at [email protected] and tell us how you’re involved in your community and we’ll spotlight some agencies in our pages.

I hope you enjoy the September edition.

Chairman & Chief Executive Officer, MarshBerry

n PG. 4 So, You Want To Be An Owner?

n PG. 6 Weighted Average Owner Age

n PG. 8 Urgency for Emerging Leaders

n PG. 10 Internal Perpetuation — No Matter What

n PG. 12 Quarter in Review Q&A

n PG. 13 The Broker Tear Sheet

n PG. 16 On the Horizon

TABLE OF CONTENTS

CONTRIBUTING AUTHORSMEGAN BOSMA, Senior Vice President

CHRIS DARST, Senior Vice President

CANDICE ENSINGER, Senior Analyst

ERIC HALLINAN, Senior Consultant

KYLE HOEFT, Consultant

TOMMY MCDONALD, Vice President

MITCH MIKOLETIC, Consultant

JOHN WEPLER, Chairman & CEO

DANI ZHELEZOVA, Data Analyst

So, You WantToBe An Owner?by Chris Darst, Senior Vice President

Successful perpetuation calls for high-performers who desire ownership. Here’s how emerging leaders can take their first steps to prepare.

Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.

5CounterPoint | September 2015

Am I ever going to have an opportunity to buy stock? Why hasn’t the owner asked me to be a shareholder yet? Is the owner ever going to perpetuate this agency? The younger generation routinely asks these questions and too often are unable to get answers. For many agency owners, perpetuation is the ultimate goal but very few ever move forward with creating a perpetuation plan and/or transferring shares. They talk a big game, but by the time they finally get around to creating a plan, it is often too late. The only decision left is to sell externally and the younger future leaders are left out to dry. If you ask the owners, they’ll tell you they are waiting for the younger generation to step up and prove their worth.

Believe it or not, there are agencies that do successfully perpetuate internally. When I think back to the numerous perpetuation plans I have worked on over the last seventeen years, there have been some spectacular successes, but there have also been many failures. In analyzing those agencies that were able to successfully perpetuate, there were many common denominators (e.g. organic growth, strong profit margins, working capital, leadership, vision, etc.), but the one common characteristic that I believe really stands out is that each had a young, talented leadership group anxious and capable of buying stock. More often than not, successful perpetuation is driven by the buyers of stock, not the sellers.

It’s Your Responsibility. Why would an owner give shares to a mediocre performer? How reassuring is it to hand over the keys to your business when you’re not sure if the driver will accelerate or run out of gas?

Internal perpetuation really isn’t an option without young talented leaders willing to acquire stock. It doesn’t matter what the organic growth rate was last year, or what the profit margin is today, there needs to be individuals willing to put

up funds to acquire stock. It is the ultimate responsibility of an owner to create a culture of continuous improvement. An environment that attracts high performing producers to warrant perpetuation as an option. However, young leaders need to take responsibility for their own role in the process.

If you want to be an owner — prove it. It is your responsibility to prove to the owners that you have the talent, drive, and vision to be a viable perpetuation option. Keep in mind owners have a great fallback position if perpetuation is not successful. Potentially, they can sell the agency for an insane amount of money with most of the funds being paid upfront. The reality is that owners probably aren’t as motivated to perpetuate today as they were ten years ago, and who can blame them. The current buyer market is extremely dynamic with many different options, and the opportunity for arbitrage between internal and external valuations has never been larger. As a result, we are seeing that it is becoming harder and harder for owners to justify internal perpetuation. The younger generation needs to be proactive and help drive the perpetuation process.

Young leaders should start having stock ownership conversations with owners early. I’m not talking about threatening owners until they finally cave and decide to sell stock. It starts with creating an impressive track record. Performing at a level that exceeds expectations earns you the right to be an owner and have a seat at the table. This provides ammunition so when you begin talking to owners about buying stock you have metrics that validate you being a shareholder. Discuss a path toward ownership. What performance does the agency want to see? When young leaders are proactive about the process, perpetuation is almost always more successful. Owners can’t merely want to perpetuate ownership; their people must desire the responsibility.

Find the Money.After consistently performing at a high level and displaying a strong desire to be a shareholder, the owners finally decide to let you become a shareholder. What does this mean from a financial point of view?

Young leaders should start having stock ownership conversations with owners early.

METRIC OF THE MONTH

6 September 2015 | CounterPoint

Data Reveals an Upward TrendAccording to MarshBerry’s proprietary benchmarking system, Perspectives for High Performance (PHP), the industry WAOA continues to climb, with the average shareholder age of 54.2 in 2015 being the oldest since 2011, and following the overall upward trend since 2007. The 2011-2012 period was an anomaly. Many agencies sold in 2012 because of the looming rise in capital gains tax rate. For many agencies WAOA will continue to rise every year unless a perpetuation plan is developed and executed. n

Key Indicator:Weighted Average Owner Age (WAOA)The pace of consolidation in the insurance brokerage sector will accelerate in the next decade due to the aging of major shareholders in insurance agencies. A key perpetuation indicator is the Weighted Average Owner Age (WAOA) which calculates the average shareholders’ age weighted by the percentage of stock each shareholder owns.

We challenge you to find a better place to put your money than in an insurance agency. According to MarshBerry’s proprietary benchmarking system, Perspectives for High Performance (PHP), in 2014, the average $10 million revenue agency generated total commissions and fees growth of 7.7% and the Best 25% of the Average increased 17.5%. With an average retention rate of approximately 90%, according to PHP, an insurance agency can be a great investment that many would argue is low risk.

That being said, perpetuation is typically the opposite of a “get rich quick scheme,” it is a “get rich slow scheme.”Some people are lucky enough to have excess funds they can use to purchase stock, but for most purchasing stock means going into debt. Buyers need financing to purchase stock and there are typically two options: the agency or a financial institution. If the agency is financing the purchase, it is important to work with the owners to come to agreement on the stock valuation, timing, terms, etc. If the only option is external financing, you should be prepared to create a detailed, systematic, step-by-step blueprint of your perpetuation plan that will be presented to bankers to secure financing.

Assumed Value of $60 Million. 5% Growth in Value Annually. 7.5% Stock Purchase. 6% Interest Rate, 10 Year Note. For illustration purposes only; Individual results may vary.

THE 32 YEAR PLAN: CASH OUTFLOW / INFLOW FOR PERPETUATION CANDIDATES


*Through 6/30/15 Source: MarshBerry proprietary financial management system Perspectives for High Performance “PHP.”

Fair is Better Than Fair. Isn’t it customary to offer stock at a discount for internal perpetuation? I earned it, it doesn’t seem fair that I have to pay full price for stock? What about sweat equity?

A perpetuation plan may include discounted stock prices, but in our experience it really is not the norm. Internal valuations should reflect fair market value and are based on actual cash flows generated by an agency, where an external value is heavily influenced by expected future cash flow of the combined entity, which includes numerous synergies and resources the agency would not have on its own. Institutional buyers are often willing to accept negative cash flow for a number of years to win a deal. For internal valuations, our experience tells us that cashflow must be positive within the first few years or the perpetuation plan will blow up. Typically, we like to see profit distributions cover debt payments associated with purchasing the stock at a minimum of a ten-year amortization schedule. In other words, if a buyer finances the purchase of a 10% block of stock with a ten-year note, the profit distributions for 10% ownership will cover the principal and interest payments of the note.

From an owners perspective, offering stock at “Fair Market Value” is already a significant discount relative to what could be earned in an external sale. Expecting an owner to discount the stock even further is a lot to ask. Keep in mind, if the agency continues to perpetuate internally and you purchase the stock at a discount, then you should expect to sell at a discount as well. On the other hand, if the end game is to sell externally, there could be a significant premium over the fair market value and you could receive a substantial windfall. Essentially, at fair market value the stock is trading at a significant discount relative to the external market.

Stay Committed. Agency perpetuation is dependent on young, motivated leaders who want to take ownership in the company and continue its success. We hope owners identify these high-performers early and give them opportunities for ownership. Unfortunately, we know this is not always the case. There are some owners that will never give up ownership no matter what the situation. As a young leader and eager buyer, be proactive by discussing your desire for ownership with the owners. It can be an uncomfortable topic, don’t be afraid to rock the boat a little. Be clear that you are not looking for a handout, you are committed to continued improvement in the agency, and in exchange you want an opportunity to be a shareholder. Owners will be much more likely to consider internal perpetuation as a real solution if they are convinced the younger generation is devoted to the process.

A well run, growing insurance agency with a laser focused perpetuation plan can be an incredible wealth creation opportunity for both selling and buying shareholders alike. It takes commitment, communication and risk taking on both sides of the perpetuation equation. Do you want it? n

Don’t be afraid to rock the boat a little.

Urgency Leaders

For the Record

The Time is Now:

We all know finding quality employees to plug into an agency’s perpetuation plan is a difficult task. So why do many firms fail to provide resources to train and develop untapped potential to strengthen perpetuation candidates?Owners in the insurance distribution industry are not the only ones facing the fears of how to successfully perpetuate an organization. The longer principals wait to start transitioning ownership the more improbable a successful perpetuation becomes. You may be asking yourself, why do I have to start thinking about perpetuation if I am Generation X and recently purchased stock. The answer is simple…perpetuation is not an event, rather, it is an ever changing series of events. The time is now to develop and work towards transitioning ownership as 59% of ownership is held by Baby Boomers.

According to Figure 1, Baby Boomers make up the majority of shareholders across the insurance industry. With the oldest Baby Boomers turning 69 this year, and the youngest entering their 50’s, it is crucial to invest in the next generation in order to perpetuate ownership.

According to a recent Gallup study1, most Americans say they plan to retire after age 65. However, on average Americans actually report retiring at age 60, which has largely been the historical average over the past ten years.

One cannot consider perpetuating ownership without considering overall staffing. According to MarshBerry’s proprietary financial management system Perspectives for High Performance (PHP), the majority of producers are Baby Boomers. Only 30.7% of all producers are considered Generation X, and in their production prime (Figure 2). When top performers are ready to


by Mitch Mikoletic, Consultant440.220.5432 [email protected]

1http://www.gallup.com/poll/182939/americans-settling-older-retirement-age.aspx

for Emerging

Source: MarshBerry proprietary financial management system Perspectives for High Performance “PHP.”

Figure 1

PERCENT OWNERSHIP BY GENERATION


In order to be in the minority of firms who actually perpetuate ownership internally, now is the time to dedicate effort and resources to develop a plan to continue the legacy of your company long after retirement.

retire, is the next generation prepared to take over? If not, don’t wait. It is important to take the necessary steps now by investing and developing in emerging producers, and create a plan to transition the books of retiring producers.

In order to combat the fear of not finding enough qualified employees to transition the ownership of an organization, owners need to view their firms as human capital development organizations. By transitioning the mindset internally, this will alleviate some of the pressure too many companies are facing. n

Source: MarshBerry proprietary financial management system Perspectives for High Performance (“PHP”).

Figure 2

PERCENT SHARE OF GENERATION BY PERSONNEL CLASSIFICATION

Intense Producer Training SessionMarshBerry and Grange Insurance are partnering to offer an intensive producer sales training designed to drive new business production through a defined sales process. MarshBerry’s SalesPro Producer Training is specific to the insurance industry and created from the methods of top producers in the industry. This session is designed for both new and seasoned commercial or employee benefits producers.

Topics Include:n Producer Business Planningn Time Managementn Six Levels of Prospectingn Hunting Large Accountsn Qualifying and Closing Techniquesn LinkedIn for Prospectingn Niche Development

Meeting Information:Grange Insurance World Headquarters Thursday, October 29, 2015 8:30 a.m. - 5:00 p.m.

Costs*:MarshBerry Network Partners: $500 per attendee. Use code “PARTNER.”

Grange Appointed Agents: $500 per attendee. Use code “GRANGE.”

Non-MarshBerry Network Partners and Non-Grange Insurance Agents: $650 per attendee.*Cost includes training materials, continental breakfast and lunch. Other travel expenses (hotel, gas, airfare, etc.) to be covered by attendees. Attendees are responsible for all travel and hotel.

Who Should Attend?New and/or seasoned commercial lines or employee benefits producers who are looking to achieve a higher level of performance.

Register today at www.MarshBerry.com.

What options are available to agencies that are fiercely committed to remaining independent? For many owners, the end result of successfully passing the business to the next generation is more desirable than the sales price or the payout terms, and a careful mix of several perpetuation tools are often utilized.

Stock Redemption The simplest perpetuation method: The agency buys the outstanding stock (usually financed by a note payable) and retires it into the treasury. The net effect reduces the number of shares outstanding and concentrates the remaining owners.

For example, an agency has two owners split 75% and 25%, the 75% owner is redeemed, now the 25% owner is 100% owner.

A disadvantage with this method is that the payment for the stock must come from after-tax dollars. However, interest on the debt associated with a stock redemption can be tax deductible.

Personal BuyoutStock is purchased directly from the retiring shareholder. The buyer may fund the purchase several ways, including through payroll, personal funds, a loan, or an “enabling bonus” from the agency. An enabling bonus can provide employees, who otherwise could not afford a block of stock, with the means to do so. Additionally, an enabling bonus could be tied to an incentive, such as writing new business.

The enabling bonus paid by the corporation is tax deductible, but the bonus received by the buyer is taxable. Sometimes, the agency will adjust the bonus to cover the tax burden to the buyer, thus making the transaction more expensive.


NoMatter What

Dealmaker’s Dialogue

Internal Perpetuation

by Eric Hallinan, Senior Consultant949.234.9652 | [email protected]

STOCK REDEMPTION

PERSONAL BUY OUT


W E W A N T T O H E A R F R O M Y O U !

We want to make sure we’re providing the content you want to read and want feedback on the articles we’re publishing. Send an email to us at [email protected] and let us know your thoughts!

Stock as CurrencyStock can be given directly to an employee as a bonus or used as payment/consideration for things like signing a non-compete agreement (and potentially increasing the enforceability of the non-compete). Any time stock is used as currency, the agency would issue stock to the recipient, causing dilution among the existing owners. While in a non-cash transaction, it is taxable as income to the recipient and it may be tax deductible to the agency.

Stock GiftingAs of 2015, individuals may give up to $14,000 to any number of recipients each year without being subject to federal gift taxes. A spouse may also join in gifting such that a couple can give together up to $28,000 annually to any number of recipients. While not a significant sum, gifting can be used over time as one component to help facilitate the perpetuation plan.

Stock OptionsAllowing individuals to purchase stock at a discounted price sometime in the future, stock options can be an effective incentive for employees to stick with the agency and help increase its value. When stock options are exercised, shares are purchased from the agency causing dilution to the existing owners.

Perpetuation planning takes time and should include the advice of tax and estate planning professionals. n

With proper planning, owners can increase the likelihood that the business will successfully transition to the next generation.Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.Marsh, Berry & Company, Inc. and MarshBerry Capital, Inc. do not provide tax or legal advice. These professionals should be consulted separately before implementing changes to your tax or legal matters.

STOCK GIFTING

Get Involved: IICF Week of Giving October 10 - 17Formed in 1994, the Insurance Industry Charitable Foundation (IICF) is a 501(c)(3), tax exempt public charity funded and directed by insurance industry professionals representing a broad spectrum of the industry.

The IICF helps communities and enriches lives by combining the collective strengths of the industry to provide grants, volunteer service, and leadership. Since its inception, the IICF has contributed over $23.5 million in local community grants, nearly 200,000 hours of volunteer service, and the leadership of over 25,000 industry volunteers for programs dealing with education, children at risk, health and safety, disaster preparedness, and the environment.

MarshBerry is a proud supporter of the IICF and we’re excited to once again participate in the IICFs Week of Giving being held October 10 - 17, 2015. The Week of Giving is a national, collaborative insurance industry tradition of volunteering. Participants do everything from collect trash, serve meals at local foodbanks, read to pre-school aged kids and more.

To learn more about how you can participate in this initiative, log on to www.IICF.org/Week-of-Giving.


1 Can you characterize organic growth for the quarter/half?

Overall, organic growth remained moderate, in the low single-digits, for the five publicly traded brokerages given the headwinds.

According to second quarter earnings calls, the brokers seem to be more optimistic for the second half of 2015. An indicator of this appears to be that brokers feel their stock is undervalued as evidenced by increased share repurchasing. We question whether headwinds will subside due to flat rates and low global economic growth, especially in China. We do not foresee notable margin expansion given continued investment in advanced data analytics, producer hiring and sales training.

In addition, brokers are facing a negative impact of the strong dollar on revenues due to the impact on our exports and slowing global economic growth.

2 How are market conditions? Any difference from last year?

While excess capacity is putting downward pressure on pricing, organizations are achieving favorable retention. The Property & Casualty (P&C) rate environment is overall flat and seems to be softening slightly given capacity and favorable catastrophic activity. We are seeing employee benefits solutions remain in high demand as consultants continue to help clients navigate the Affordable Care Act and how it impacts their human resource needs (e.g. increased complexity, higher costs, and competition for talent).

From a staffing perspective, brokers are seeing some wage inflation on the service and support staff. However, an increasing use of offshore outsourcing seems to be helping to balance this out.

3 Any notable trends (technology, international expansion, diversification, etc.)? Across the board, we’re seeing that brokers are continuing to invest in technology platforms with an increased focus on

analytics. In addition, investment in key talent is a high priority. Brokers are investing in training, recruiting interns as well as producers who match the culture of the organization. There is a massive focus on investing in additional capabilities and expertise, especially around employee benefits and compliance.

Brokers are also expanding their international footprint, especially in Canada, to support a global workforce at the local level.

4 Have acquisitions been strong or weak? Is there momentum going forward? According to our internal tracking, Mergers and Acquisitions (M&A) are on track to make 2015 a record year. M&A

activity should continue to be a key strategy for the national brokers as they search for agencies with the right cultural fit, geography and organic growth. In our opinion, it’s really a sellers’ market. Valuations and deal multiples are up and private equity is contributing to drive pricing higher.

Brokers are maintaining a robust pipeline, with both platform and fold-in deals, and using cash and debt for most of the funding.


Quarter in Review Q&Awith John Wepler

BROKERAon

CorporationArthur J.

Gallagher & Co.

Brown & Brown, Inc.

Marsh & McLennan

Companies, Inc.

Willis Group Holdings

Public Limited Company

Ticker AON AJG BRO MMC WSH

Total Revenue LTM (in $ mil) 11,856 3,901 1,638 12,875 3,805

Number of Employees (FTEs)1 68,633 21,098 7,591 57,000 18,400

Number of Offices1 500 650 237 500 400

Revenue per Employee ($) 172,745 184,918 215,806 225,877 206,793

Revenue per Office ($) 23,712,000 6,002,154 6,912,165 25,750,000 9,512,500

ENTERPRISE VALUE2

Common Stock Price ($) 99.68 47.30 32.86 56.70 46.90

Number of Shares Outstanding (in 000s) 279,800 174,545 140,821 531,365 179,610

Market Capitalization (in $ mil) 27,890 8,256 4,627 30,128 8,424

Plus: Total Debt (in $ mil) 6,061 2,372 1,167 3,936 2,520

Plus: Preferred Stock & Minority Interest in Subsidiaries (in $ mil) 58 73 0 89 148

Less: Cash & Short Term Investments (in $ mil) 367 322 413 930 483

Equals: Enterprise Value (in $ mil) $33,642 $10,379 $5,381 $33,223 $10,609

BOOK OF BUSINESS VALUE2

Market Capitalization (in $ mil) 27,890 8,256 4,627 30,128 8,424

Less: Tangible Net Worth (in $ mil) -4,555 -1,619 -1,219 -1,283 -1,283

Equals: Book of Business Value (in $ mil) $32,445 $9,875 $5,846 $31,411 $9,707

ORGANIC GROWTH

Organic Growth3 2.0% 5.8% 1.9% 3.0% 1.6%

Total Growth3 -3.7% 17.1% 5.5% -2.2% 1.4%

The Broker Tear Sheet has been prepared by Marsh, Berry & Co., Inc. This is an overview and analysis of the five publicly traded insurance brokers, and is not intended to provide investment recommendations on any company. It is not a research report; as such term is defined by applicable laws and regulations. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities, financial instruments or to participate in any particular trading strategy. This tear sheet is distributed with the understanding that the publisher and distributor are not rendering legal, accounting, financial or other advice and assume no liability in connection with its use. This tear sheet does not rate or recommend securities of individual companies, nor does it contain sufficient information upon which to make an investment decision. These materials are based solely on information contained in publicly available documents and certain other information provided to Marsh, Berry & Co., Inc., and Marsh, Berry & Co., Inc. has not independently attempted to investigate or to verify such information. Marsh, Berry & Co., Inc. has relied, without independent investigation, upon the accuracy, completeness and reasonableness of such information and therefore has assumed no obligation to update this data for financial restatements. These materials are intended for your benefit and use and may not be reproduced, disseminated, quoted or referred to, in whole or in part, or used for any other purpose, without the prior written consent of Marsh, Berry & Co., Inc. Nothing herein shall constitute a recommendation or opinion to buy or sell any security of any publicly traded entity mentioned in this document. Numbers may not add up due to rounding, however, this does not materially affect the data integrity.

The Broker Tear Sheet is a proprietary quarterly report from MarshBerry that highlights critical ratios and statistics on the performance and market value of the five publicly traded insurance brokers. The information is compiled from a number of credible sources including: SNL Financial, Yahoo! Finance, Morningstar and Reuters reports along with company websites.

The one and five year Financial Performance Indicators are updated after each broker’s year end filing (Q4), while the remaining metrics are updated on a quarterly basis.

S e p t e m b e r 2 0 1 5

Q2 2015 Snapshot (as of 06.30.15)

1 Number of employees and number of offices are estimates based on data provided in annual reports, SNL Financial and on corporate websites by each company. 2 Numbers may not add up due to rounding.3Both Organic Growth and Total Growth represent the most recent quarter (MRQ) in comparison to the same period for the prior year for all reported segments. As such, the difference is comprised of growth by acquisition and disposition of applicable business units for the MRQ. It could include items such as contingent revenue, acquisition revenue and disposed revenue from those that would exclude it from their organic growth calculation. Organic Growth calculations vary by broker (see reverse side).

The Broker TearSheet



#1 M&A RANKING BY SNL FINANCIAL

4As reported in the MD&A published by each company; and calculated and reported slightly differently by each. AON: Includes all revenue (excludes fiduciary investment income, business unit transfers, unusual items and reimbursable expenses). AJG: Includes base organic commission & fee revenue (excludes supplemental and contingent commission revenues, South Australia ramp up fees and New Zealand claims administration). BRO: Includes total commissions and fees and Colonial Claims’ revenue related to Hurricane Sandy from 1Q13, among other items (excludes profit sharing and supplemental commissions). MMC: Includes all segments of revenue, using consistent currency translation (Excluding divestitures, business unit transfers, and acquisitions). WSH: Includes total commissions & fees (excludes legacy contingent commission, investment, and other income). All broker calculations exclude the impact of foreign currency translation, divestitures/disposed operations, and the first twelve months of acquisition commission & fee revenue, except where noted.5EBITDA is not adjusted to include the add-back of non-recurring expenses written off throughout the year.

TERMINOLOGY KEY: LTM: LAST 12 MONTHS (12.31.14); CAGR: COMPOUND ANNUAL GROWTH RATE (12.31.14); EBITDA: EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION & AMORTIZATION; NM: NON-MEASURABLE; YOY: YEAR OVER YEAR

EBITDA5 LTM (in $ mil)

Marsh McLennan 2,657 Aon 2,442 Willis Group Hldgs 746 AJ Gallagher 682 Brown & Brown 492

Median 746

EBITDA YOY Growth as of 12.31.14

AJ Gallagher 22.3%Aon 9.7%Marsh McLennan 4.5%Willis Group 3.2%Brown & Brown 2.7%

Median 4.5%

EBITDA Growth 5 Year CAGR

Marsh McLennan 17.6%Aon 14.8%AJ Gallagher 13.6%Brown & Brown 7.3%Willis Group -1.4%

Median 13.6%

EBITDA Margin LTM

Brown & Brown 30.0%Marsh McLennan 20.6%Aon 20.6%Willis Group Hldgs 19.6%AJ Gallagher 17.5%

Median 20.6%

EBITDA Margin 5 Year Average

Brown & Brown 33.1%Aon 19.9%Marsh McLennan 17.9%AJ Gallagher 17.8%Willis Group 16.5%

Median 17.9%

PROFIT

Organic GrowthQuarter End 2Q154

AJ Gallagher 5.8%Marsh McLennan 3.0%Aon 2.0%Brown & Brown 1.9%Willis Group Hldgs 1.6%

Median 2.0%

Revenue YOY Growth as of 12.31.14

AJ Gallagher 30.1%Brown & Brown 15.6%Marsh McLennan 5.4%Willis Group 3.6%Aon 1.9%

Median 5.4%

Revenue Growth 5 Year CAGR

AJ Gallagher 15.6%Brown & Brown 10.2%Aon 9.6%Marsh McLennan 5.7%Willis Group 3.1%

Median 9.6%

Total Revenue LTM (in $ mil)

Marsh McLennan 12,875 Aon 11,856 AJ Gallagher 3,901 Willis Group Hldgs 3,805 Brown & Brown 1,638

Median 3,901

GROWTHOrganic Growth Year to

Date as of 06.30.154

AJ Gallagher 5.9%Marsh McLennan 3.0%Brown & Brown 2.8%Willis Group Hldgs 2.6%Aon 2.5%

Median 2.8%

Tangible Net Worth (in $ mil)

Brown & Brown (1,219)Marsh McLennan (1,283)Willis Group Hldgs (1,283)AJ Gallagher (1,619)Aon (4,555)

Median (1,283)

Working Capital/LTM Revenue

Marsh McLennan 16.2%Brown & Brown 13.4%Willis Group Hldgs 11.9%AJ Gallagher 9.1%Aon 6.9%

Median 11.9%

Days of Working Capital

Marsh McLennan 70.8 Brown & Brown 61.9 Willis Group Hldgs 49.2 AJ Gallagher 35.8 Aon 29.1

Median 49.2

BALANCE SHEETTangible Net Worth

as % of Revenue

Marsh McLennan -10.0%Willis Group Hldgs -33.7%Aon -38.4%AJ Gallagher -41.5%Brown & Brown -74.4%

Median -38.4%

Debt to LTM EBITDA (Lower performance is usually best)

Marsh McLennan 1.5 Brown & Brown 2.4 Aon 2.5 Willis Group Hldgs 3.4 AJ Gallagher 3.5

Median 2.5

Market Cap (in $ mil)

Marsh McLennan 30,128 Aon 27,890 Willis Group Hldgs 8,424 AJ Gallagher 8,256 Brown & Brown 4,627

Median 8,424

Book of Biz Value as Multiple of LTM EBITDA

AJ Gallagher 14.5 Aon 13.3 Willis Group Hldgs 13.0 Brown & Brown 11.9 Marsh McLennan 11.8

Median 13.0

Enterprise Value as Multiple of LTM EBITDA

AJ Gallagher 15.2 Willis Group Hldgs 14.2 Aon 13.8 Marsh McLennan 12.5 Brown & Brown 10.9

Median 13.8

Price-Earnings Multiple

AJ Gallagher 25.8 Willis Group Hldgs 24.6 Aon 22.9 Brown & Brown 22.5 Marsh McLennan 20.8

Median 22.9

VALUEBook of Biz Value as

Multiple of LTM Revenue

Brown & Brown 3.6 Aon 2.7 Willis Group Hldgs 2.6 AJ Gallagher 2.5 Marsh McLennan 2.4

Median 2.6

Dividend Yield Quarter End 2Q15

AJ Gallagher 3.1%Willis Group Hldgs 2.6%Marsh McLennan 2.2%Brown & Brown 1.3%Aon 1.1%

Median 2.2%

RETURNEarnings Yield

Quarter End 2Q15

AJ Gallagher 1.7%Marsh McLennan 1.4%Brown & Brown 1.3%Willis Group Hldgs 0.8%Aon 0.6%

Median 1.3%

Price Per Share Growth LTM

Aon 10.6%Marsh McLennan 9.4%Willis Group Hldgs 8.3%Brown & Brown 7.0%AJ Gallagher 1.5%

Median 8.3%

Price Per Share Growth 5 Year CAGR

Marsh McLennan 21.0%Aon 19.9%AJ Gallagher 15.9%Brown & Brown 12.9%Willis Group 11.2%

Median 15.9%

Total Return LTM

Marsh McLennan 11.2%Aon 11.1%Willis Group Hldgs 9.6%Brown & Brown 7.5%AJ Gallagher 3.3%

Median 9.6%

Securities offered through MarshBerry Capital, Inc., Member FINRA, Member SIPC, and an affiliate of Marsh, Berry & Co., Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 • 800.426.2774 No portion of this publication may be reproduced without express written consent from Marsh, Berry & Company, Inc. All rights reserved © 2015.

For an archive of reports and newsletters please visit www.MarshBerry.com/Articles

Q2 2015 Financial Performance Indicators (as of 06.30.15)


MARSHBERRY

2014 Deals

MARSHBERRY

OUR COMPETITION

Merger & Acquisition Transactions in Insurance Brokerage 1999-2014Ranked by Total Number of Deals

35*

479* 1999-2014 Completed Transactions

Completed transactions in the United States as reported by SNL Financial, January 26, 2015

This data displays a snapshot at a particular point in time of the number of deals as reported by SNL Financial. It has not been updated to reflect subsequent changes, if any.

MOST ACTIVE – ADVISOR RANKINGS

• 479* total Merger & Acquisition (M&A) transactions closed since 1999, representing 30% of total advised deal flow as tracked by SNL Financial

• $1.8B in advised transaction value since 2012**

• Over 250 M&A transactions since 1995 with the 100 largest brokers of U.S. business as identified by Business Insurance, and over 175 Bank Insurance M&A transactions since 1997

• Completed more than 235 diagnostic and confirmatory due diligence projects over the last ten years

Securities offered through MarshBerry Capital, Inc., Member FINRA and SIPC, and an affiliate of Marsh, Berry & Company, Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 (440.354.3230).

* These totals include certain transactions completed by Marsh, Berry & Company, Inc. professionals while employed at another firm, whereby substantially all of the assets were acquired by Marsh, Berry & Company, Inc.

** Based upon maximum possible transaction price; MarshBerry closed deals through 12/31/14, excludes deals where MarshBerry represented both parties.

800.426.2774 • www.MarshBerry.com

MARSHBERRY LEADS THE INDUSTRY IN M&A. AGAIN.

#1 M&A RANKING BY SNL FINANCIAL


MARSHBERRY28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122

ON THE HORIZON

SEPTEMBER 201509.23 Sales & Growth Leadership Seminar - Ohio About the Seminar: Organic growth involves creating a

sales management infrastructure that can enable your sales team to be successful and letting the model filter out under performers. This interactive seminar showcases the best practices high growth agencies have implemented.

Who Should Attend: Insurance agency executives and sales managers trying to build a high-growth organization.

OC TOBER 201510.29 SalesPro Producer Training - Ohio Grange Insurance World Headquarters

Grange Innovation Center - Room 1D 671 S. High Street, Columbus, OH 43206

NOVEMBER 201511.4 - 9th Annual SNL Insurance Brokerage11.5 Summit – New York

Use code MBY200 at registration to receive a $200 discount.

Peer Exchange Network NewsMark your calendars:

APPEX Fall 2015 ConferenceRegistration is now open for the fall APPEX meeting at the Royal Sonesta in Houston, Texas, October 20 – 23, 2015.

Visit www.MarshBerry.com to by September 26, 2015 to reserve your spot and take advantage of early bird pricing rates.

See y’all in Houston!

Interested in learning more about our Peer Exchange Networks? Contact Tommy McDonald today at [email protected]

Log on to www.MarshBerry.com to register for events and to view all other MarshBerry news and events.

So, You WantTo Be An Owner? · 2017-11-09 · October 10 - 17, 2015 marks the IICF Week of Giving....

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