Wells Fargo & Co.’s deal to buy ACO Brokerage Holdings Corp. — the parent of the Acordia Inc. insurance agency — would not only create the largest bank-owned insurance agency operation in the country but might change the landscape of bank-agency acquisitions.

“This is going to send a shock wave through the system,” said John Wepler, senior vice president, mergers and acquisitions, of the Marsh Berry & Co. consulting firm in Concord, Ohio, which specializes in bank acquisitions of agencies.

“Making this acquisition is going to put distance between Wells and other bank-owned agencies,” he said, and the extra volume will give Wells “a significant advantage in buying power with the insurance companies.”

The deal is also a wake-up call for smaller regional banking companies that have been slow to get into insurance, he said. Banking companies will to have to play catch-up in a big way to get the insurance agency presence they will need, Mr. Wepler said.

Together, Acordia and Wells Fargo Insurance have 176 offices in 38 states. Their revenue totaled about $630 million last year.

Mr. Wepler predicted that the deal will make super regional banks more aggressive in buying top-performing local agencies this year. “That’s the only way they can complete against the volume strength something like a Wells would have,” he said.

Jim Campbell, senior vice president of Reagan Consulting Inc. in Atlanta, agreed that the deal is a landmark event for bank-agency mergers. It shows that convergence “is for real, folks,” Mr. Campbell said. “It’s not just a trend — it’s really a new direction for the industry.”

In addition, he said, the deal, which would dramatically change the balance of Wells’ revenue stream, illustrates a big change in how banks are thinking of agency purchases.

“We heard banks talk early on primarily about the economics of being in the insurance business,” he said. The ACO deal shows that big banks are now taking a more strategic approach, as smaller banks will need to do in the future, Mr. Campbell said.

Wells Fargo announced Thursday that it had agreed to buy the Chicago-based property/casualty agency, which has $400 million in annual revenue. The price was not disclosed. The companies expect to close the transaction in the second quarter.

Timothy J. King, the president of Wells Fargo Insurance, said, “We’ve had good success in the P&C agencies we’ve owned over the years, and we’re very interested in continuing to be a national leader in distribution.”

Acordia has offices in 29 states; most of Wells’ branches are on the West Coast and in the Midwest.

Mr. King said Wells does not plan to sell Acordia’s East Coast operations. “We actually do a lot of lending on the East Coast, where we don’t have banks,” he said. Wells has other national operations with an East Coast presence as well, such as auto finance.

Wells intends to cross-sell insurance products to its small-business and middle-market customers, Mr. King said, adding that the bank is a top lender in those markets. Acordia sells property-casualty and employee benefits insurance primarily for small and middle-market commercial clients. Wells Fargo Insurance offers personal-lines insurance products such as auto, homeowners, and life insurance, as well as some commercial property/casualty products.

In addition, Mr. King said, the bank and the agency have overlapping customer bases not only in terms of size, but by industry.

Acordia does very well in niche businesses, he said, and those match up well with the customers to which Wells lends. For example, “they insure a lot of ski resorts, and we’re the largest lender to ski resorts. They do a lot of work with universities and colleges, and we do student loans.”

Mr. King said Wells’ insurance strategy is the same as its banking strategy. “Our goal is to be the insurance agency of choice in all the different towns and cities that we deal in,” he said.

Frank Witthun would remain president of Acordia, which would retain its name and headquarters. Wells Fargo Insurance’s agencies would become Acordia agencies, though the life insurance operations would stay separate, Mr. Witthun said.

Though cross-selling between a bank and agency has not been tried on this scale before, “becoming a full financial solution is really the way of the future,” he said. “We’re pretty excited about testing some of those theories.”

The acquisition would make Wells Fargo the fourth-largest insurance agency in the country, according to Business Insurance’s 1999 list of the top agencies.

Christopher Bamman, an analyst with Advest Inc., said that for Wells Fargo the deal “is part of its strategy to gain distribution and really diversify its product line.”

“Wells wants to make insurance brokerage and trust 25% of its business, up from about 15%. This is a step in that direction.”

Acordia will probably continue to grow through acquisition, Mr. Witthun said. Since 1991 it has grown primarily by buying smaller agencies to build market share, he said. “We wanted to be one, two, or three in market share where we had our local offices.”

“We’ve created a lot of value through acquisitions,” Mr. Witthun said, “and we plan on continuing to grow the company, probably very much with the same strategic plan that we’ve had.”

The deal had rumored for nearly a year. Sources said they had expected it to be signed last year.

Mr. King said the deal took so long because Acordia had “some things working on their side of the ledger.” He declined to explain.

Mr. Witthun said that when Acordia was taken private in 1997, the plan all along was for the financial investors to sell their portion in 2001. “We’ve always known we were going to be seeking a new partner this year,” he said.

Acordia decided to sell to Wells Fargo instead of one of its larger competitors, like Marsh & McLennan or Aon Corp., because its culture and customer base fit better with Wells’, Mr. Witthun said. Acordia has sought out more middle-market customers than its larger competitors, which tend to target Fortune 1,000 clients, he said.

“Acordia’s client slice and its community-based middle-market approach make an ideal profile for a bank to target,” Mr. Wepler said. Though Wells lacks a branch network for cross-selling in the East, small and middle-market businesses are “the type of customers that it’s not necessary to have a teller line to get at,” he said. These customers have consultative relationships with their bankers and their insurance agents that can be capitalized on without branches, he said.

The challenge for Wells Fargo, Mr. Wepler said, will be managing the cross-selling process on such a scale. “It’s going to be tougher to manage an entire network like that,” he said. “It’s tough enough to manage cross-selling when a regional bank buys a local agency.”

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