National Financial Partners Corp. plans to maintain its acquisition strategy to further diversify its business, its chairman and chief executive officer said.
This year the New York company, which operates a national distribution network of 165 companies, has added $21 million to its annual base earnings through 18 acquisitions, Jessica Bibliowicz, its chairman and CEO, said during its quarterly conference call. It is focusing on buying more benefits companies to improve its product mix, she said.
At the end of the second quarter life insurance companies made up 66% of the network, benefits companies 25%, and financial advisory companies 9%.
During the second quarter National Financial bought three companies - a long-term care wholesaler, a group life and disability wholesaler, and a group benefits firm - which generated $8.4 million of revenue last year and added $3.5 million to base earnings. This quarter it has already bought a life insurance and estate planning company and four benefits companies. They generated revenue of about $21.1 million last year, and the acquisitions added $7.4 million to base earnings.
"Our 18 acquisitions so far this year have surpassed our budget for the year and acquisition level for all of last year," Ms. Bibliowicz said. "We are going to continue to look to acquire quality firms in order to build out our resources."
National Financial had budgeted to acquire enough companies this year to add $15 million to base earnings. Though it has exceeded that budget, "the pipeline is healthy" and offers more opportunities, Ms. Bibliowicz said.
Analysts said National Financial is smart to diversify its business, since life insurance sales are expected to decline in the second half. Geoffrey Bobroff, an analyst at Bobroff Consulting in East Greenwich, R.I., said that National Financial needs to bring its clients a more complete offering, including health insurance, life insurance, and investments.
"I think the market thought National Financial would be making more acquisitions to build its money management business," he said. "This firm is still selling primarily an insurance business, because that is where the largest commissions are. I think conceptually they have the right strategy, but as a company they remain focused on insurance."
Ms. Bibliowicz said that though the company believes demand for life insurance remains strong, sales may be "challenging" in the second half.
"We view our business as a diversified business, not just a life insurance business, but also as a benefits business, and as the firms grow, an investment advisory business," she said.
Including the acquisitions, second-quarter revenue jumped 28.1% from a year earlier, to $262.3 million. Net income rose 10.5%, to $13.7 million, and cash earnings rose 16.7%, to $25.8 million.
Mark C. Biderman, an executive vice president and the chief financial officer at National Financial, said the company has maintained strong growth over the past six quarters, despite $5 million of unanticipated expenses related to an investigation by the New York Attorney General's Office.
In the first quarter of last year National Financial launched an internal review in response to six subpoenas the office issued in October 2004 to investigate whether the company asked insurers to give clients "fictitious or inflated quotes" or misrepresented quotes.
The $2 million internal review found no evidence to support an assertion of bid-rigging, the company said. Ms. Bibliowicz said it continues to cooperate fully with the investigation.
Mr. Biderman said National Financial, which paid $500,000 of legal costs related to the review in the second quarter, expects "incremental" legal expenses to continue through the rest of this year.
It expects 6% to 9% of organic growth in its existing companies over the rest of this year, he said.
Ms. Bibliowicz said she hopes its units will work more closely together to increase cross-selling.
"This company's strategy is really a great combination of acquisitions helping develop organic growth for our existing firms, and existing firms helping the acquired firms build out their businesses," she said.
