Wachovia Insurance Services Inc. stepped outside its banking parent's footprint with its deal this week for the nation's 15th-largest insurance broker and says it may continue this push with deals on the West Coast.
Stewart McDowell, the president and chief executive officer of Wachovia Insurance, said in an interview Tuesday that its planned purchase of the Palmer & Cay agency would "fill a dozen holes in our key-city banking footprint." "From a geographic standpoint it is very attractive," he said.
Wachovia Corp. had announced earlier Tuesday that it has an agreement to buy Palmer & Cay Inc. in Savannah, Ga., an insurance brokerage and benefits consulting firm with operations in 22 states, including California, and the District of Columbia.
Mr. McDowell said that Wachovia Insurance has completed 10 agency deals in the last five years but that the Palmer & Cay deal was "a unique opportunity to go with a premium organization that has great scale. We were ready for a larger deal, and it brings us closer to our goal of having a national presence."
He said he will keep looking for agency deals. "We are interested in all strategic and geographic opportunities," he said, but Wachovia will have an eye for deals on the West Coast. He declined to elaborate about where on the West Coast Wachovia may look or whether there is a deal timetable. He also declined to say whether the parent Wachovia Corp. is considering a bank expansion to the West Coast.
Besides California, buying Palmer & Cay would give Wachovia Insurance entry into Colorado, Illinois, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Ohio, Tennessee, and Wisconsin. Among the key cities and regions added are Boston; Philadelphia; New York; Richmond, Va.; Charleston, S.C.; Savannah and Columbus, Ga.; Jacksonville, Fla.; southern Florida; Houston; and Dallas.
The insurance division already is in New Jersey, New York, Connecticut, Pennsylvania, Delaware, Florida, Georgia, North Carolina, South Carolina, and Virginia
Published reports have said that Palmer & Cay added many professionals from Marsh & McLennan in recent years. The companies declined to comment on how many hirings that came to. But the relationship has been contentious at times - one such hiring led to litigation in Georgia over a noncompete agreement that Marsh was trying to enforce.
Though Wachovia's "strategy has been to acquire quality brokers within their footprint," said James Campbell, a senior vice president and principal of Reagan Consulting in Atlanta, its decision to expand outside the footprint was not a surprise. "We are seeing more of that as more banks are looking at [insurance] as a stand-alone business. They are looking at the cross-sell potential, but it's not holding their insurance strategy hostage," he said.
The West Coast could be a good opportunity for Wachovia, Mr. Campbell said. "If you're looking at insurance as a stand-alone business, it is an attractive place to look. There are a lot of intriguing brokers and agencies there. And with a bank the size of Wachovia, you have to look at larger pieces."
Carmen Effron, the president of the C F Effron Co. consulting firm in Westport, Conn., said this deal would make Wachovia "a powerhouse in commercial and property and casualty distribution. Their breadth is going to be tremendous."
The deal also is a message to Wachovia's bank customers that it is committed to broadening its base of operations, she said. "There are only four banks that have a presence in more than 20 states," she said, "Bank of America, JPMorgan Chase, U.S. Bancorp, and Wells Fargo. Wachovia has a national focus now." Wachovia has bank branches in 15 states: Connecticut, New York, New Jersey, Pennsylvania, Delaware, Maryland, Alabama, Mississippi, Virginia, North Carolina, South Carolina, Georgia, Florida, Tennessee, and Texas.
"To be able to attract more clients, they need a base of operations to compete with Wells out west," Ms. Effron said. And though retail business is unlikely, Wachovia could attract small-business and wealthy clients with a West Coast agency.
Though the deal would add scale to Wachovia, Mr. McDowell said, he did not expect to be facing new competitors as a result. "We really compete with everybody - the Big Three - Willis, Marsh, and Aon - and regional firms that play in that arena. We also compete with local agencies."
The Palmer & Cay deal was also attractive because of the agency's sales structure, said Mr. McDowell. "Palmer & Cay has a number of specialized niches and groups that are so appropriate today for serving larger clients. It's an infrastructure we didn't have," he said.
Palmer & Cay has "staff that works exclusively on the health-care industry," he said, for example. "It's that specialization and niche expertise that allows them to do business with a larger and more sophisticated audience."
Palmer & Cay operates 34 offices in California, Colorado, Connecticut, Florida, Georgia, Illinois, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Wisconsin, and the District of Columbia.
John E. Cay 3d, the chairman and chief executive officer of Palmer & Cay, is to become chairman of Wachovia Insurance once the deal closes. Mr. McDowell is to remain president and chief executive officer.
"We had a long relationship with Wachovia, and we think highly of them," Mr. Cay said in an interview. "This was a perfect cultural and strategic fit."
Wachovia Insurance would have more than $400 million of annual revenue and 1,800 employees if the deal closes, up from about $250 million and 850 employees now. This would make it one of the top 10 U.S. insurance brokerages.
Mr. McDowell said he hopes the deal will close by late this quarter. He declined to reveal its price.
About 10% of Wachovia Insurance's revenues are bank-related, Mr. McDowell said, and he expects this share to grow once the deal is completed. "I think the added geographical coverage will help. But having been in insurance for only five years, we are still developing relationships with the bank. We are starting to hit our stride. It's a challenge to marry banking and insurance," he said.
Large deals have a positive impact on the bank insurance business, said Ms. Effron. "One of the problems that has always been there for banks is the perception that banks don't have a high level of expertise" in selling insurance products, she said. "With deals like Palmer & Cay and [Wells Fargo's] Acordia, more people are aware of the bank's ability to sell insurance."
Wachovia Insurance is part of the bank's wealth management division, which last year had a profit of $198 million on revenues of $1.07 billion.
Wachovia Corp. provides financial services to retail, brokerage, and corporate customers; it has retail brokerage operations nationwide. The company's earning assets were $493.3 billion at Dec. 31.
