Wachovia Corp. is bolstering its insurance operations with a deal for a major commercial-lines agency, acting about a week after Wells Fargo & Co. announced its intention to buy the big insurance agency Acordia Inc.
Wachovia of Winston-Salem, N.C., said Wednesday that it has agreed to acquire Hamilton Dorsey Alston Co., an Atlanta property-casualty and employee benefits agency with about $20 million of annual revenue.
The price was not disclosed. The deal is scheduled to close in the second quarter.
Hamilton Dorsey would become the third insurance producer acquired by $74 billion-asset Wachovia in the past 18 months. The banking company bought DavisBaldwin Inc., a Tampa commercial property-casualty agency, in November and Barry, Evans, Josephs & Snipes, Inc., a Charlotte, N.C., life insurance agency, in September 1999.
More such deals between major banking companies and sizable insurance brokerages may be coming.
"The flood has started," said John Wepler, senior vice president of mergers and acquisitions at Marsh Berry & Co., a Concord, Ohio, consulting firm that specializes in bank acquisitions of agencies. "The top 100 brokers are dropping like flies. We're going to see a massive number of transactions this calendar year."
These top brokerages tend to focus on commercial clients and the rich owners of those businesses, which is a key customer base for banking companies looking to profit from the large wealth transfer expected to occur as baby boomers retire and die, Mr. Wepler said.
David Holton, president of Wachovia Insurance Services, said his unit "is very interested in expanding its ability to serve the commercial business and the affluent markets."
Hamilton Dorsey would operate as a subsidiary of Wachovia Bank. John C. Hamilton, president and chief executive officer of Hamilton Dorsey, would act as its managing director.
Wachovia's existing insurance operations, once combined with Hamilton Dorsey's, would have nearly $65 million of revenue. Combining both operations' 1999 revenues, they would have ranked as the fifth-largest bank-owned insurance agency that year.
The banking company intends to keep its insurance agencies as separate entities, but "we'll obviously be looking for ways to draw on the synergies," including combining back-office infrastructure and sharing ideas about cross-selling and other sales practices, Mr. Holton said.
Mr. Hamilton said his agency's customer base of middle-market commercial clients and affluent personal-lines clients matches up well with Wachovia's target clients.
Hamilton Dorsey tries to "provide personal insurance for the key executives, commercial insurance for the company, and employee benefits for the employees," Mr. Hamilton said. Adding the ability to cross-sell banking products "is a nice way of wrapping it all up," he said.
The agency was not focused on pairing off with a banking company but wanted to be "with a company of the quality of Wachovia," Mr. Hamilton said.
Mr. Holton said Wachovia views Hamilton Dorsey and DavisBaldwin as the infrastructure upon which to build its insurance business.
"Buying agencies is just one mechanism to grow our franchise," Mr. Holton said. Though he did not rule out the possibility of Wachovia's making more major deals in the Southeast, where it has its bank branches, he said it is also looking at hiring independent agents or buying small agencies that could be incorporated into its existing agencies.
Building one of the largest bank-owned agencies is not the main goal of Wachovia's acquisition strategy, Mr. Holton said. "Size is not the driving force for this. The driving force is to find quality agencies."
However, "obviously you have to have a certain level of size if you are going to be able to have the infrastructure to support the level of services needed to serve this market," including affluent and middle-market commercial customers, he said.
Mr. Wepler said Hamilton Dorsey would be "a fantastic acquisition" for Wachovia.
"I think that Wachovia is an example of a bank that is not just trying to increase their fee income or trying to cross-sell," he said. "They are trying to evolve. They are trying to lead the industry is providing a complete basket of financial services to commercial and high-net-worth customers."
Banking companies are most successful when they buy top-performing commercial insurance agencies, and more companies are adopting that strategy, Mr. Wepler said.
In recent years, large banking companies have focused on selling personal insurance lines to their millions of customers and have generally built those operations internally, he said. The next step for these companies, he said, is selling commercial lines, and he predicted that more large deals like Wells Fargo's and Wachovia's will be done this year.
"The banks that are the leaders are trying to capture the quality agencies," he said. "And the high-quality insurance brokers that have never thought of selling are now finding their future with banks."
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