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Brown & Brown's (BRO) Unit Closes The Sterling Group Buyout

Brown & Brown, Inc.’s BRO unit Brown & Brown Dealer Services (BBDS) closed the buyout of all the assets of Dealer Financial Services of NC Inc. doing business as the Sterling Group. However, financial terms of the transaction were not made public.

North Carolina-based Sterling Group offers its dealer partners finance and insurance (F&I) products and sales training, F&I performance management and customer retention strategies.

Rationale Behind the Deal

With the deal, Brown & Brown will leverage Sterling Group’s experience in F&I products as well as dealer performance management to boost and increase the acquirer’s existing capabilities. Also, with this buyout, BBDS will get a seasoned and experienced team in North Carolina and surrounding states.

As far as Sterling Group is concerned, this acquisition will give its team the opportunity to access new insurance risk management tools as well as the advantage of national footprint with the focus of a local broker.

Brown & Brown seems to be pursuing buyouts for boosting top-line growth. Notably, this transaction marks the first buyout for the brokerage firm in the second quarter of 2020. In the first quarter of 2020, the insurer made five acquisitions.

Consistent investments along with solid earnings help this Zacks Rank #3 (Hold) insurance broker in inorganic efforts and buyouts. These strategic acquisitions assist Brown & Brown to drive commission and fees, which, in turn, will boost revenue growth. In 2019, its commission and fees increased 18.7% year over year and registered top-line growth, witnessing CAGR of 8.7% over the past five years (2014-2019).

Brown & Brown maintains a disciplined focus on acquiring companies that are strategic fits. In 2019, it closed 23 transactions with approximately $105 million of annual revenues.  The company has acquired 500 insurance intermediary operations in more than two decades. It continues to make investments to drive growth and margins.

Other Acquisitions in the Same Space

It is also the right time to take advantage of the evolving private equity, merger and acquisition space, which holds ample growth opportunities for the industry players. Recently, there have been a number of acquisitions in the insurance industry, given the significant capital available. For example, Arthur J. Gallagher & Co. AJG acquired McConnell, Manit & Trout Insurance Services, LLC (MMT). This buyout will provide the acquirer significant growth opportunities and is likely to boost its expertise in several key industries.

Also, Aon plc AON entered into an agreement with Willis Towers Watson Public Limited Company WLTW to combine in an all-stock deal, which is expected to cater to unmet client requirements and fight the evolving insurance industry threats. This acquisition is the insurance sector's largest deal, combining the world’s second and the largest insurance brokers.

We expect all these efforts to not only help enhance the companies’ abilities but also combat the risks involved such as climate change, cybersecurity, etc.

Shares of Brown & Brown have gained 16.4% in the past year, against the industry’s decline of 6.9%. The company’s efforts to ramp up growth and its solid capital position should continue to drive shares higher.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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