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Brown & Brown's Unit Buyout to Enhance Product Portfolio

Zacks Equity Research

Brown & Brown Insurance Services of California, Inc., a subsidiary of Brown & Brown, Inc. BRO, has purchased substantially all the assets of Austin & Austin Insurance Services. The transaction will enable the acquirer to enhance its product and service portfolio. Additionally, the deal will provide an excellent opportunity to fetch in superior quality talent to the existing team at the insurance broker’s Lafayette office.

Established in 1987, Austin & Austin Insurance was formed to cater to the insurance needs of real estate professionals in the Bay Area. The company mainly focuses on offering errors and omissions insurance coverage to real estate brokers across California. The firm boasts generating annual revenues of about $2 million. Post completion of the buyout, the entire team will shift to Brown & Brown’s California-based Lafayette office and will function under Matt Sitzmann’s leadership.

From the standpoint of Austin & Austin Insurance, this move will lend an impetus to the firm’s objective of offering the best products and services to its clients while promoting an enjoyable yet challenging work experience for the team.

Apart from diversifying the insurance broker’s product and service portfolio, the latest consolidation will help ramping up the company’s inorganic growth profile and boosting its margin expansion.

The above-mentioned inorganic ploy is expected to brace the company in fueling growth and broadening its scope of operations. Also, these strategic attempts will facilitate Brown & Brown to increase its commissions and fees, which in turn, is likely to aid revenue growth.

The year 2018 marked the insurance broker’s most important phase for pursuing acquisitions with the takeover of Hays Companies emerging as the most significant transaction. Per the company’s projection, this particular purchase is estimated to deliver revenues in the range of $210-$220 million during 2019.

Shares of this Zacks Rank #3 (Hold) insurance broker have gained 4.8% year to date, underperforming its industry’s rally of 12%. Nonetheless, we expect the company’s sustained operational performance, higher commissions and fees plus a solid capital position to push the stock higher in the near term.


Other Insurers Following Suit

Considering the insurance industry’s extensive capital at disposal, there has been an array of significant acquisitions in its domain of late.

Recently, Cincinnati Financial Corporation CINF closed the previously announced (Oct 12, 2018) buyout of MSP Underwriting Limited, a reputed global specialty underwriter and a unit of Munich Re. Cincinnati Financial stands to benefit from MSP Underwriting’s experienced underwriting team while supporting its business lines.

Also, this month, Arthur J. Gallagher & Co. AJG inked a deal to acquire the global aerospace operations of Jardine Lloyd Thompson Group plc. The transaction is expected to strengthen the acquirer’s position in the aviation and aerospace sector. The buyout, subject to European Commission approval, is estimated to be completed this spring. Further, this closure is in connection with the completion of the Jardine Lloyd Thompson’s purchase by Marsh & McLennan Companies, Inc. MMC.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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