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Business Observer Thursday, Sep. 3, 2009 12 years ago

A Million Bites

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Brown & Brown has grown into a major player in the insurance brokerage business through 300 small acquisitions. The key: Create a competitive and lucrative sales culture and cut all fat.
by: Bob Andelman Contributing Writer

Brown & Brown has grown into a major player in the insurance brokerage business through 300 small acquisitions. The key: Create a competitive and lucrative sales culture and cut all fat.

As growth strategies go, building by acquisition isn't for everybody.

But everybody isn't Brown & Brown, Inc., the Daytona Beach- and Tampa-based insurance brokerage firm that ranks seventh in revenues in the United States—and ninth in the world. For them, years of careful acquisitions—300 in the last 16 years—and one key 1993 merger with Poe Insurance of Tampa, has built a company of great financial strength and influence.

Brown & Brown (NYSE: BRO) carefully investigates each target acquisition, makes sure it will be a good fit with the company's intensive sales culture, then assimilates it from the first day.

“They're very picky,” says Sally Roberts, senior editor at Business Insurance magazine. “Powell and Hyatt Brown would tell you there have been mistakes along the way, but they know the type of people they're looking for. The courtship is long and involved. Hyatt and his wife will host some of these firms; the principals stay at their house, they have meals together. They take a lot of time. They know the mold they want the company to fit.”

Brown & Brown, which has 5,400 employees, does so many acquisitions that it has in-house legal, financial and quality control staff dedicated to nothing else.

“Cultural fit is of paramount importance,” says Brown & Brown president and CEO J. Powell Brown. “That is the biggest thing we look for. Its not geography. Cultural fit is one of the first and most important things we look at. We're interested in the quality of the people. So whether they're in Detroit, Denver, or Sarasota, the bottom line is it's all about good people. We intend for those sellers to be with us in the future and stay with us. That might lead to additional acquisitions in that area or in whatever their specialty might be.”

Companies selected for acquisition are approved based on delivered earnings over one to three years. They must quickly shake off any bad habits they developed while going it alone. Golf and country club memberships aren't tolerated at the company's expense. Unproductive family members are dropped from payrolls. The firms Brown & Brown acquires must agree to these revenue-boosting moves before a deal is done.

The economy has had an impact on the acquisition strategy. Brown & Brown spent $119 million on acquisitions in 2008 and $108 million in 2007. This year? Just $17 million.

“We're talking to just as many people but they're wondering how the economy will affect them now or in the future,” Brown says. “The price of insurance agencies today is in the historical range in terms of valuations. There was a period when prices moved up; that pulled back in the last 12 months.”

Brown says that his business is a reflection of the broad market and the recession is impacting parts of the economy differently. Still, Brown & Brown had negative internal growth for the last two years. “We never had that before.
That's a function of the economy and a very competitive rate environment. Rates are still compressing... our revenues are shrinking.”

That may be true, but analysts are sticking by the brokerage giant.
“They've stuck to their core disciplines,” says Nik Fisken, director of research for Stephens Inc. in Little Rock. “That's why they've been so successful. They haven't wavered off the reservation much at all. Their sales culture is unlike anything else in insurance brokerage.”

Family continuity
Brown & Brown is also noteworthy because it has accomplished all of this under the guidance of three generations of Brown family men, most recently when J. Powell Brown, 41, took over as CEO from his father, Hyatt Brown, on

The succession was announced two years ago and Hyatt still keeps a hand in the business.

“I feel very fortunate and privileged to work very closely with my father,” Powell says. “He's our chairman of the board. He's still involved with acquisitions, people recruiting and selling business. His definition of retirement and
Webster's is different. To him it means he went from 80 hours a week to merely 40. And he's having lots of fun, too.”

Fisken describes the Brown & Brown power handoff as a model for family-run businesses — or any other.

“It's going very smoothly,” according to the analyst, who has covered the company for 10 years. “It's a tough market right now and they have three big headwinds: Florida, the economy, and negative pricing trends. But despite those three, the transition has gone well and will continue to go well. Their management bench is strong. And it's not like Hyatt is 100 percent retired.”

Brown & Brown makes its money the old fashioned way. It relies upon a go-go sales culture and hardcore, aggressive competition among its own brokers and with other firms for market share. Salespeople are heavily incentivized with both cash and stock bonuses and ranked monthly according to their sales volume.

You don't want to be a broker on the bottom of that list.

The Brown & Brown culture demands that brokers either improve or they're gone. But if you have the sales gene and work your butt off, you'll do well in the company.

“At first glance, they look typical to their competitors,” Fisken says. “But anyone who dives in deep and gets to know the company realizes they're atypical, given their robust sales culture and focus on small business USA. That combination yields the best margins in the business. And they have an intense focus on profitability.”

The company has a “top gun” report that recognizes its top producers across the country. They participate in a producer stock plan that Fisken says has created $100 million in broker wealth among Brown & Brown employees.

“In 2008, we had Brown & Brown's brokerage revenues at $966 million,” says Roberts. “They are absolutely one of the world's biggest brokers.”

The world's three largest insurance brokers are global behemoths that cater to the Fortune 500 and 1000. Brown & Brown, by contrast, is made up of small offices dotting the landscape that cater to much smaller accounts that nonetheless add up to huge volume.

Here and there
Also unique in Brown & Brown is its dual headquarters structure.

The company, which began in Daytona Beach, added Tampa headquarters when it swallowed Poe Insurance in 1993. Poe was a publicly traded company and it was larger than Brown & Brown, which was privately held. Until then,
Brown & Brown sold only retail insurance, whereas Poe had retail and program businesses. Poe had offices in other states; Brown & Brown was only doing business in Florida.

Today, retail and wholesale insurance business is run from Daytona Beach, where Powell Brown lives and works; retail, program and wholesale operations are in Tampa, where two of the company's most senior officers are based. Corporate counsel is also in the Tampa headquarters.

Powell Brown says that even though his grandfather started Brown & Brown and his father ran and built it into the powerhouse it is now, he wasn't destined to sell insurance.

“Many people assume that if you grow up in a family that's in insurance, you're going to go in. That was not an automatic assumption in our family. It was an option but not a foregone conclusion.”

Powell and his youngest brother, Barrett Brown, 36, both worked at separate insurance companies for several years before deciding to rejoin the family business.

“I wanted to figure out if I really wanted to go into the insurance business before I joined Brown & Brown,” Powell says. He worked in Atlanta for Continental Insurance for three years. Barrett spent four years with Chubb; he's now a sales manager at Brown & Brown's Tampa office.

“If I didn't think it was a great business, I wouldn't work at Brown & Brown, whether I had a family business or not,” Powell says. “Continental was a great experience, but I couldn't work as an underwriter all my life. It taught me how underwriters think, how they price business and the type of programs some insurance companies use to write business. It also taught me I couldn't sit still at a desk 8 or 10 hours a day. I wanted to be in a situation where I'm involved with sales.”

A middle brother, Kellim Brown, 37, is an African art dealer living in Brussels. “He is a guy that has always been a great adventurer; he's not too keen on wearing a shirt and tie,” Powell says. “He followed his passion in college, which is the right thing to do.”

Third-generation family business or not, Powell knows he answers to a higher authority.

“I feel honored that my grandfather founded Brown & Brown in 1939,” Powell says. “But I'm also cognizant that in '93 we became a public company. We do what is in the best interests of our shareholders, team members and clients. When people call it a family business, I understand it, but I don't think about it. Everybody has different impressions of what somebody means by a 'family' company, but there are clearly defined lines when it's a public company.

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