Expanding its employee benefits coverage, Marsh & McLennan Companies Inc.’s(MMC) Marsh & McLennan Agency LLC (MMA) announced yesterday the acquisition of Texas-based Prescott Pailet Benefits LP (PPB). However, the terms and value of the deal remains undisclosed. MMA is a subsidiary of Marsh & McLennan’s leading insurance brokerage wing– Marsh Inc.
PPB came into existence in 2006 with the amalgamation of Prescott Benefit Services and Pailet Financial Services. The $6 million employee benefits firm provides various health, life, dental and disability insurance products to many organizations across the southwest of US. MMA is also expected to benefit from the broker’s profound presence in the property-casualty and employee benefit experience in the region.
MMA has primarily acquired this firm to propel the growth of its Houston-based Insurance Alliance that was acquired in November 2009, under which PPB will carry out its operations.
Acquisitions Inducing Growth
Moreover, MMA is pursuing consistent expansion through inorganic growth. Following the acquisition of PPB, MMA has acquired eleven firms since November 2009, which includes Insurance Alliance, The NIA Group, Haake Cos., Thomas Rutherfoord Inc., Bostonian Group and Kinloch Boston. 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.
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 first quarter of 2011, posting improved results on account of top line growth in all lines of businesses and higher investment income. These were partially offset by increased operating and 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 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).
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.
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