The St. Louis-area banking company Enterprise Financial Services says its deal for the Nashville insurance wholesaler Millennium Brokerage Group could pave the way for further wealth management deals in what it perceives as a growth market.
"Now that we have a presence in Nashville, we're interested in additional growth opportunities," said Enterprise president and chief executive officer Kevin Eichner. The Clayton, Mo., company's core markets of St. Louis and Kansas City, Mo., "are not known for being growth markets. It would be nice to be in some markets where a rising tide is raising all boats," he said.
Enterprise Financial is interested in buying wealth management firms and making them stand-alone subsidiaries - as it plans to do with Millennium - to avoid potential culture clashes between bank and nonbank operations, Mr. Eichner said.
Millennium is Enterprise Financial's first insurance-related deal. Its closing would let the banking company penetrate the wholesale insurance distribution market and gain cross-selling opportunities for the bank's wealth management business, according to Mr. Eichner. Millennium has life insurance consulting and brokerage operations in 49 states.
Cross-selling also motivated an agency deal early this month in northern Virginia.
Alliance Bankshares Corp. in Chantilly said its deal for Danaher Insurance Agency of Annandale, Va., would let it broaden its commercial bank base. Thomas A. Young, the president and CEO of Alliance Bankshares, said the agency would also give his company cross-selling opportunities between its wealth management offerings and Danaher's high-net-worth brokerage services.
"We're anticipating that there will be a lot of synergies," he said.
Like Mr. Eichner, Mr. Young said his $692 million-asset banking company is interested in further deals. Alliance Bankshares, which announced its agreement to buy the Danaher agency on Oct. 7, is considering additional insurance-related deals in the Washington area, he said.
The Millennium deal "gives us an additional distribution platform through which we can offer trust services and banking products," Mr. Eichner said. The Nashville brokerage would enable Enterprise Financial to offer products from top life insurance carriers, including Jefferson-Pilot, Lincoln Financial Group, Travelers Life and Annuity, and John Hancock Financial Services, he added.
"We could never get to that level of distribution with a company our size, with direct distribution," Mr. Eichner said. The $2 billion-asset Enterprise Bank and Trust has an insurance agency in-house that distributes insurance offerings directly to retail clients.
The Millennium deal also would help Enterprise broaden its wealth management product menu, said Brian Martin, an analyst at Howe Barnes Investments in Chicago. "It fits right in with their existing product set and allows them to diversify their revenue stream," he said.
Buying a wholesaler with a diversified client base would give Enterprise Financial an edge over banks that have acquired local insurance brokers, which are dependent on their relationships with individual agents, Mr. Eichner said.
"This is very different from buying an agency, which many banks have done," Mr. Eichner said. "This is a nationwide business, and your producers don't walk out the door every day."
The deal would also help Enterprise boost fee-based income by bolstering investment product sales, he said. In light of the lackluster returns available in the markets in recent years, many banks are moving to a fee-based brokerage model, which is based on assets under management, from transaction-based structures.
Enterprise Bank and Trust offers wealth management services that include retirement and estate planning and open-architecture investment management to business owners and high-net-worth clients in the St. Louis and Kansas City areas. The trust company, through which it offers wealth management services, was founded in 1998 and has $1.5 billion of assets.
Enterprise agreed last Thursday to buy a 60% stake in Millennium for an initial payout of $15 million, 65% in cash and 35% in stock. It could ultimately pay as much as $36 million in all for 100% ownership of Millennium, though payments planned for 2008 and 2010 are dependent on Millennium's financial performance.
Millennium's principals "did not want to sell 100% of the company [at once] because they feel they have a lot of growth potential," Mr. Eichner said.
The deal's terms entitle Enterprise to a 23.1% pretax return on its investment in Millennium before it increases its stake in the brokerage. Millennium is to continue operating under its own brand.
The deal is expected to close this month.
Millennium, founded in 1999, provides life insurance products and consulting services to a wholesale client base across the United States that includes life agents, banks, accounting firms, property and casualty groups, and financial advisers.
