Changes and consolidations in the financial-services industry inspired 24 independent firms around the U.S., including three in Connecticut, to form one of the country's largest benefits firms that executives say will make it easier to compete with other major players that offer more products and services.
Alera Group formed in November in what may be one of the largest mergers of its kind — not in terms of deal value but the number of firms joining forces all at one time. Industry experts say there could be more deals like it, especially with private-equity investors showing more interest in the industry.
Overnight, Alera says it has become the country's 14th largest private insurance firm and seventh largest private employee-benefits firm with $158 million in annual revenues and more than 750 employees. The three Connecticut firms — Beacon Retiree Benefits Group LLC of Plantsville, CBP of Stamford and C.M. Smith Agency LLC of Hartford — are joining 21 other independent employee benefits, property and casualty, risk management and wealth management firms with more than 20,000 clients in 15 states from California to Florida.
"It's not just being bigger for bigger's sake, it's having more resources and able to turn those resources into value for your clients, and it's tougher to do that as a standalone firm without some sort of platform around you," said John O'Connell, president of C.M. Smith.
His agency is a consultant and broker to mid-market employers, roughly in the range of 100 to 5,000 employees, with a focus on the employee-benefits and healthcare business.
"Our toolbox got markedly bigger and not just that, but the people who are working the tools are people we've known, respect and we know can deliver on the deal," O'Connell said, likening the group to an all-star team of thought leaders and other talent.
Alera intends to keep growing organically and through acquisitions of companies looking not to cash out, but grow their business, said Alan Levitz, CEO of Deerfield, Ill.-based Alera and former CEO of GCG Financial Inc. in Deerfield, one of the founding Alera companies. Alera wants to have $500 million in revenue in five years, he said.
It's an active time for deals in the industry. Last year was the second-highest year ever for M&As of insurance agencies, with 449 deals in the U.S. and Canada, behind only 2015, according to OPTIS Partners' annual report. The report covers only reported transactions of agencies selling primarily property and casualty insurance and/or employee benefits, so actual numbers are higher.
The sellers' market will probably remain in 2017, "but the perfect storm benefiting sellers won't last forever," said Timothy J. Cunningham, managing director of OPTIS, an investment banking and financial consulting firm specializing in the insurance industry.
O'Connell was on the ground floor of Alera's formation as a board member for the Benefit Advisors Network, a national group of about 70 independent employee-benefits brokers that meets regularly to collaborate and help each other. With Benefit Advisors Network (BAN) members occasionally selling out to larger competitors and leaving, members approached the board for alternative ways for members to get stronger and more competitive.
O'Connell was part of small subgroup that explored how 24 firms in BAN could form a new national broker. Two years later, Alera launched. BAN is now part of Alera and is stronger than ever with a subset of its members in Alera and part of the BAN network, he said.
Alera's founding members already knew each other well and collaborated at a deep level for years in BAN, which smoothed Alera's formation, O'Connell said.
"It was made clear that someone who is just looking for a big payday out of this and not really focused on business improvement, this probably wasn't going to be their thing," O'Connell said.
Alera comprises mostly employee-benefits firms, but that will change as Alera balances its portfolio with property/casualty and commercial insurance and wealth-management firms.
Alera's goal is to acquire much more property and casualty business than it has today, Levitz said.
"We're probably a top 100 broker in the property and casualty world, but we have much bigger and loftier aspirations," he said.
O'Connell said Alera will have a positive impact in Connecticut because the industry is highly fragmented, with at least 7,000 independent brokers in the U.S.
"Alera in many ways represents another pathway for an agency owner who still is very, very much in the game," who's innovative and looking to collaborate at a deeper level with others, he said.
"It's not an exit strategy," he added. "It's actually the opposite. It's a way to reinvigorate your firm and move forward with other like-minded entrepreneurs."
O'Connell said he wasn't disparaging other "rollup plays" where smaller companies are bought out or become cogs in a bigger wheel. Instead, Alera seeks a sweet spot, he said.
Brian Luciani, co-managing partner of Hamden-based Blueprint Benefit Advisors, which is a member of United Benefit Advisors (UBA), a group similar to Benefit Advisors Network, said the Alera concept leveraging 24 companies on behalf of clients is good and might work.
"But, boy, you've got to collaborate and crowdsource and absolutely trust your partners to get anything done otherwise you're doing the same products and the same level of service to your client base under a new name, that's it," Luciani said.
Alera's formation wasn't surprising, given the amount of money private-equity firms have for such aggregation deals, for which UBA firms are regularly approached, he said.
Alera formed with investment from private equity firm Genstar Capital LLC and brokerage assistance from consulting and investment banking firm Marsh, Berry & Co. Inc.
Private-equity backed agencies were 2016's biggest buyers, OPTIS said, with the top two being Acrisure, 63 deals, and Hub International, 45.
Luciani said he expects to see more deals like Alera's.
Meantime, Alera is looking for more deals, particularly with companies that want to grow, collaborate and fit the culture, Levitz said. They will have access to benefits, property and casualty and wealth-management services, intellectual capital and market leaders.
"We're looking for firms that want to be collaborative and be a part of the process, not sort of be a one and done … 'buy me and I'm out,'" he said. "That is not who we are looking for."
Chris Peck, a partner in CBP of Stamford, which focuses primarily on employee benefits in health care, said Alera is attractive on many fronts.
"It kind of elevates you to this new level, which would take us, of course, many, many years to get to," Peck said.
With marketplace consolidation, many companies have knocked on CBP's doors over the years, but creating a new company with friends, peers and people highly regarded in the industry was attractive "and … it was to fund our future growth, not to fund our retirement," he said.
Darcy Caslin, president of Beacon Retiree Benefits Group in Plantsville, called her inclusion in Alera a "game-changer." While CBP bought out Beacon in 2013, she has remained a minority shareholder and continues to run the company, but said it can be hard to grow as a smaller firm.
"This opens up a lot of opportunity for Beacon throughout these different agencies and helps us compete as a larger company," Caslin said of having technology and resources she didn't have before.
She can be introduced to other books of business, including large corporate or public-sector clients she might not have been able to access, otherwise.
Kelly Norris, executive director of the Professional Insurance Agents trade association for Connecticut, said in a statement that mergers and acquisitions are a continuing business reality among its members and across the industry over the last several years.
"As long as the merged organizations maintain the tenants of professional, independent agents, these agreements will continue to be good for the consumer," she said. "But, if they don't, it could be detrimental for consumers, who are used to personal-level service and attention."