With its announcement this week that it has agreed to buy a Connecticut insurance brokerage, Commerce Bancorp has jumped back into the busy agency-deal arena after a three-year absence.
Banks and other buyers have been snapping up distributors at a fast clip since the Gramm-Leach-Bliley Act of 1999 removed legal obstacles to doing so.
But $32 billion-asset Commerce, whose Commerce Insurance Services is the 13th-biggest bank-owned insurance brokerage, had kept to the sidelines since 2001 before making the deal for BK International Insurance Brokers Ltd. in Greenwich, Conn.
"For several years, until fairly recently, multiples had become, in my opinion, unrealistic," said George E. Norcross, the insurance division's chairman and chief executive officer. Agencies' prices have come closer lately to a more reasonable multiple, which he said is in the neighborhood of six times earnings before taxes.
Commerce's most active dealmaking period was 1997 through 1999. The Connecticut deal is its first major one since 2001, and more may be in the cards: Mr. Norcross said the insurance unit has an acquisition division that analyzes about 40 potential targets at a time.
But Cherry Hill, N.J.-based Commerce is very picky when it comes to pulling the trigger, he said.
The BK International deal - which would add 35 employees to Commerce Insurance's staff of 650 - comes in tandem with the parent bank's expansion into Connecticut. It has 326 branches in the Philadelphia, New York, and Washington areas, and it plans to open the first two of 25 branches planned for affluent Fairfield County, Conn., in Norwalk and Fairfield late this month.
Commerce Insurance was started in 1997 and has been built through a combination of acquisitions and cross-selling success. Last year, it had fee income from insurance brokerage of $72 million, according to Fee Income Report, which is published by Michael White Associates, a consulting firm in Radnor, Pa. It offers both commercial and personal lines products.
Insurance revenues are 19.3% of the company's noninterest income - the sixth-best among agencies owned by banks with at least $10 billion of assets - and 5.2% of net operating revenue, ranking it ninth, according to the report.
The insurance operation also emphasizes internal growth. Mr. Norcross said that his unit's organic growth rate is typically four to five percentage points higher than those of its rivals, based on regulatory filings that the company monitors.
BK International's territory is home to a lot of wealthy people, and Mr. Norcross said the company is ready to serve them with a "premier client group" based in Cherry Hill that targets the wealthy. The company plans to expand that group into Greenwich, Manhattan, and Philadelphia.
Its service orientation should help as well; customers can call in claims and even buy policies 24 hours a day, seven days a week, Mr. Norcross said.
The Connecticut agency's leadership is to remain in place when the deal closes. In fact, such stability is a prerequisite for Commerce's agency purchases, Mr. Norcross said. "I don't think we have ever made an acquisition where the existing management talent was not part of the transaction," he said.
Agency owners often agree to buyouts because they want to retire, but Commerce seeks those run by executives in their 40s or early 50s who are "young, aggressive, innovative, entrepreneurial," he said, and BK International fit the mold.
Mr. Garmhausen, who covered mutual funds for American Banker from 1997 to 1999, is a freelance writer in Brooklyn, N.Y
