The purchase of Ottawa Kent Insurance Agency Inc. comes as a Traverse City-based agency platform backed by private equity investors pursues a Midwest acquisition strategy.
High Street Insurance Partners Inc. Managing Partner and CEO Scott Wick “realistically” hopes to make eight to 12 acquisitions annually over the next three to five years as the insurance brokerage industry continues to consolidate.
“We are in acquisition mode,” said Wick, who formed High Street Insurance last year with partner Randy Koch and Detroit-based Huron Capital Partners LLC.
The deal this month for Jenison-based Ottawa Kent Insurance Agency was the sixth since June 2018 for High Street Insurance. One of the larger insurance agencies in the West Michigan market, the 40-year-old Ottawa Kent Insurance serves more than 10,000 clients through offices in Jenison, Sparta, Holland and Byron Center.
Principals in the agency remain active in the business and retained their positions. Terms of the deal were undisclosed.
High Street Insurance has more deals in the works that should close by the end of 2019, Wick said.
“We’re very blessed to see what our pipeline is right now. Our growth looks fantastic,” Wick said. “If we can close the potential partnerships that we’re looking at right now, you would see probably three or four or five close by the end of the year, and then our Q1 is very strong for 2020.”
High Street Insurance focuses primarily on making acquisitions in the Midwest, with an emphasis on Michigan and Pennsylvania, where last year it acquired The DJB Group Inc. in Meadville, north of Pittsburgh. High Street Insurance Partners targets property and casualty insurance agencies that operate with what Wick describes as a “fanatical approach” to serving clients.
The number of deals High Street Insurance actually makes each year will hinge on the firm’s ability to properly absorb an acquisition partner, he said.
“We want to make sure our integration and assimilation process is done effectively and the right way,” said Wick, who relocated to Traverse City in August 2017 after working for Hub International in Chicago as chief sales officer for the Midwest. “We’re active but we want to be smart and we want to be careful with what our pace looks like. We’re trying to make sure we can live up to all of the promises that we’re making.”
Koch, his business partner, also previously worked for Hub International as CEO of the Midwest region. He’s now a managing partner and COO at High Street Insurance.
In pursuing deals, High Street Insurance looks to retain an acquired agency’s name and the local management teams to run the business and grow, Wick said.
“We want active participants in what we’re trying to build,” he said. “We’re looking to bring more to the table. We’re not looking to change the table or change the menu.”
High Street Insurance began last year with the acquisition of Peterson McGregor and Associates LLC, a Traverse City-based agency that provides commercial and personal insurance and employee benefits. Most recently, High Street Insurance acquired Tompkins Insurance Agency Inc. in Traverse City in June and KorthaseFlinn Insurance & Financial Services in Boyne City in July.
In deciding to form High Street Insurance with Wick and Koch, Huron Capital entered an industry with a recurring revenue stream that generates “great margins,” said Matt Hare, a partner at Huron Capital. The insurance industry also has “held up pretty well” in past economic downturns, “and given where we are in the economic cycle, that’s important to us,” Hare said.
“The insurance agency market itself is really attractive,” he said. “It’s a people-centric business, which is something we like a lot. The model lends itself well to what private equity wants.”
The private equity firm had looked at the industry before, Hare said.
The opportunity to proceed came when Huron Capital was introduced to Wick and Koch. They are industry veterans who could connect and build rapport with agency owners as High Street Insurance pursues prospective sellers that are “growth-minded” and share a “customer-first philosophy” in how they operate, Hare said.
“The insurance agency industry space is one where there has been a lot of private equity activity over the last couple of years, and so to be able to stand out, you have to have a message that will resonate with the business owners,” he said. “Scott and Randy were guys we trust to deliver that message and guys we trust to stand out from the crowd and present a thesis that’s a little bit different from the other guys out there.”
Deals gain steam
High Street Insurance pursues acquisitions as the insurance agency industry in North America continues a prolonged period of consolidation, much of it driven by private equity.
Of the top nine acquirers listed by Chicago-based Optis Partners LLC in a quarterly report on M&A activity in the industry, seven are private equity firms or buyers operating with PE backing.
Optis Partners counted 328 closed transactions in the U.S. through the first half of 2019, up from 300 during the first six months of 2018.
The industry recorded 637 deals in all of 2018, which compares to 611 in 2017, according to Optis Partners. The firm’s second quarter M&A report noted that “the pace and aggressiveness of the buyers continues to push pricing and transaction counts to new levels.”
“Nobody we’re talking to or have talked to has not received a phone call or multiple phone calls, whether that’s on a weekly or even a daily basis,” Wick said. “There’s no lack of outreach by a potential suitor.”
Caledonia-based Acrisure LLC remains the top agency acquirer, closing 39 deals in the first half of the year. Acrisure, which has been pursuing an aggressive acquisition strategy, closed 328 deals from 2015 to 2018, according to Optis Partners.
Dave Tuit, Acrisure’s former CFO, joined High Street Partners in June as a senior partner and CFO.
“Bringing him on brings a ton of expertise and a ton of deals that he’s done in the past,” Wick said.
The 20-year-old Huron Capital, which has created six funds totaling $1.8 billion, generally holds companies for about five years, Hare said. In building High Street Insurance, the private equity firm could remain involved in the company for an extended period.
“We want to be thoughtful about the length of hold for Huron Capital,” he said. “There have been other buy-and-build strategies like this one where we’re bringing a lot of businesses together. Sometimes those do take longer to gel and come together the right way.
“We don’t have a definitive horizon, but we certainly want to make sure regardless of how long we’re in it that we’re doing the right things for the business in the long term. If you’re trying to game the system of when Huron moves on, then you’re not doing the right things for the business.”