playbook-Hooked In, Not Selling Out-July 2011
The company is a global professional services firm . . . .” So begins the business overview section of the Form 10-K for New York–based Marsh & McLennan Companies, Inc., the $10 billion “parent company of a number of the world’s leading risk experts,” including its Marsh unit, “a world leader in delivering risk and insurance services and solutions . . . .” OK, we get it.
But most of us make our living in the middle market—companies of less than $50 million in sales, maybe 100 employees. We don’t routinely call a global risk strategist. We just call our insurance agent. Someone like Bill Jeatran.
Jeatran founded Brooklyn Park–based RJF Agencies in 1986. Today, the firm, specializing in liability, health, and employee benefits coverage for middle market companies, employs about 140. It’s a respected agency in the region and known for being fiercely independent. That’s why it surprised some when RJF recently became part of Marsh & McLennan Agency, a subsidiary of Marsh.
Jeatran says that he can’t really think of anything that’s changed—except that he can now connect a global risk expert from Marsh with one of his 5,000 or so clients, if that’s what’s needed. The sign on the door is the same, no clients have left, no employees have elected to move on, and as he puts it, “I told our customers that if they see one adverse change, I get a phone call. And it hasn’t happened.”
One other thing that has changed: Jeatran and his partner, Tim Fleming, now have access to Marsh & McLennan’s checkbook and have been asked to acquire other middle market insurance agencies.
Marsh has been around since the 1870s, and it’s been trying to succeed in the lower–middle market maybe ever since. In late 2008, Marsh formed the Marsh & McLennan Agency. Marsh leaders were blunt: The middle market customer wants somebody who isn’t us. They rolled out a plan to acquire independent agencies around the country, leave them alone for the most part, and fund their growth. Marsh & McLennan Agency Chairman and CEO David Eslick says he has known Fleming for years, and that RJF was on his short list from the beginning. “Bill and Tim and the team carry the highest quality standards in our industry. And that was well known to us,” he says.
Jeatran and Fleming first heard of Marsh’s strategy more than a year ago, from friends whose own agency had been one of Marsh & McLennan’s first acquisitions. The partners thought that this was just another large company elbowing its way into a new market, with BigCo structure and business processes. The friends insisted otherwise, and they put Jeatran in touch with Eslick.
The RJF shareholders—Jeatran, Fleming, and nine others—were not looking to sell the company. But they had been thinking about an eventual transition and owner liquidity. Jeatran didn’t like other models he saw, such as selling to a private equity group or a large financial services firm. “Most of those guys would try to make us them,” he says. “And there would be an impact on employment. I did not want to look any of my employees in the eye and tell them they had no opportunity.”
As Jeatran got to know Marsh & McLennan’s senior leadership, he learned that they did not have a car full of managers waiting to fill others’ jobs, including his. In fact, the corporate parent has only 11 employees, and 5 of them are the M&A deal team.
As David Martin, founder of the RJF competitor David Martin Agency, puts it, “Knowing those guys the way I do, being able to take some chips off the table . . . and still be able to protect their people was really important to them. It would appeal to me.”
Jeatran declines to discuss contract terms, but he says he and Fleming told the Marsh executives that they are in for “a 10-year run.” Eslick envisions RJF as the foundation of a 15- or 20-year growth strategy in the upper Midwest. And he has told the RJF partners that it’s their job to make RJF bigger, not turn it into Marsh. So Job One is making more acquisitions.
“The phone isn’t ringing, but my phone is dialing,” Jeatran says. “If people are looking for the acquirer of choice, I think we can be that.” At press time, he was working on three deals. Plans are to start close to home, buying “a few” firms in the Twin Cities before venturing into other states.
RJF screens first for culture—focused personal service, commitment to staff, bias toward growth and opportunity. Once a target is identified, it is turned over to the Marsh & McLennan Agency M&A team to conduct due diligence and, when warranted, negotiate a transaction. “That’s when we become an ally of the sellers for the rest of the process, if that makes sense,” Jeatran adds.
Martin, one of the owners of a high-profile firm that is essentially a smaller version of RJF, declines to say whether he’s talked to RJF about linking up. He says he’s planning to stay “fiercely independent.” In addition to some of the usual reasons for not seeking a buyer—such as the fact that he’s never had a boss and is not sure he ever should—Martin says his market position is built around independence, working mostly with middle market clients who view themselves as the fiercely independent firms of their industries. And insurance agency consolidation is actually helping, in that it is getting easier for Martin to differentiate his firm.
On the other hand, the parent of RJF had $1.33 billion in cash as of March 31, and wouldn’t it be wise to get hold of some of that money before Jeatran uses up his acquisitions budget? “Yeah, but by the same token,” Martin replies, “a lot of us entrepreneurial types aren’t too smart,” by which he means a business owner has multiple goals and maximizing cash proceeds is rarely the only one.
In that, Jeatran would agree. He says he has no plans to rush—the pace of deals is secondary to ensuring cultural and strategic fit. Keeping the culture of an independent like RJF, while growing in size and capability, is very much on his mind. It will remain so through the day he eventually withdraws, 10 or so years down the road. After all, he says, “Culture is driven by leadership, not ownership.”