By James Thaler

Feb 25 - (The Insurer) - San Francisco-based retailer Woodruff Sawyer is progressing towards a potential sale to an unconfirmed buyer in a deal that could be worth north of $1.0 billion, after the Andy Barrengos-led firm held preliminary talks with a number of the industry’s major broking firms.

Although the identity of Woodruff’s buyer could not immediately be confirmed, sources said that both Marsh and Aon, as well as a number of other major intermediaries, declined to pursue a transaction with Woodruff after initial discussions exploring a potential deal.

Woodruff, which has been around since 1918 and is employee-owned rather than private equity-backed, ranks among the top-40 U.S. intermediaries, with somewhere in the region of $240 million in annual brokerage revenue based on 2023 numbers.

The company is largely known as a D&O specialist, which sources said has created headwinds in its effort to sell itself, as conditions in the public D&O market have softened dramatically in the last two years, with rate decreases in turn contributing to a downturn in brokerage commissions.

A deal for Woodruff could value the company somewhere in the region of $1.0 billion, based on a business running at an estimated 30% margin on estimated gross brokerage revenue of around $240 million and a 15x multiple for Ebitda of around $30 million.

However, some sources pointed to current market pricing for retail broking businesses is likely to be closer to around 6x revenue, which would point to a deal potentially as large as $1.5 billion.

Having previously resisted acquisition overtures from both strategics and financial sponsors, it was not immediately clear the driving factors behind the firm now pursuing a sale of itself.

The intermediary is thought to have somewhere north of 700 employees on staff, though an exact figure could not immediately be confirmed. Barrengos joined the company in 1996 and has led the company as CEO since 2016.

Among potential buyers linked with interest in Woodruff are WTW, Brown & Brown and expansive Denver-based brokerage house IMA Financial, which had been identified as frontrunner for the firm by multiple sources.

However, one source familiar with the matter was emphatic that IMA is not pursuing a deal for Woodruff.

IMA like Woodruff is majority employee-owned, but received a minority equity investment from a consortium of investors that was announced in October 2020 and led by New Mountain Capital with participation from fellow PE firm SkyKnight Capital and the family office of The Stephens Group.

Sources said the clout of PE backing and access to debt markets could support an acquisition at the scale of Woodruff.

On his firm’s fourth-quarter results call late last month, Brown & Brown CEO J Powell Brown said some recent large M&A among broking giants is in line with a wave of consolidation he is predicting to occur in the coming years.

“And what you've seen is you're seeing parts of that. The firms that were acquired last year were – the larger ones – were all private-equity backed,” he explained.

“And there are other private equity-backed firms out there that are seeking to buy other large private equity-backed firms. There are other strategics that are thinking about or looking to buy the right firm,” he continued.

The CEO said that his company has been “very conservative financially” in paying down debt used to fund its larger acquisitions, which he said had been done to “prepare” Brown & Brown to make an investment “of pretty much any size business that we might want to buy”.

“It doesn't mean we're going to buy anything big, but we want the ability to do it if we find the right one. And so we feel really good about our positioning not only from the core business that we have and the opportunity to do very good acquisitions from a standalone basis,” he added.

The executive also said that valuation multiples have generally moderated for the larger PE-backed firms.

“And if a larger acquisition came along that fit culturally and made sense financially, we'll absolutely look at it,” Brown commented.

WTW LOOKING TO RAMP UP M&A

In December, WTW CEO Carl Hess told The Insurer in an interview the company is ramping up its search for M&A deals.

“It's not as if our organic growth isn't competitive, but if everyone else is growing inorganically, while we're just growing organically, eventually we have a relevance problem,” he explained.

“That's one of the reasons we look to M&A and as something that it's got to be part of the competitive strategy,” he noted.

Hess said that the firm will be very targeted in M&A, seeking deals that would complement existing capabilities, including deepening specialty areas and geographies where it is already a player, but may be underweight, such as the U.S.

The CEO also said WTW would be focused on potential deals where the firm can be “a good owner” and “create value as a prudent steward of shareholders capital”.

“Our focus is on our broking businesses as well as our wealth management business, because these are all businesses where there is room to expand and we do see opportunities.”

“We will look to complement an organic strategy that's working well with us with finding people in bulk who will work well with us.”

He wouldn’t be drawn on the size of potential deals, but emphasised they would have to be a cultural fit.

“One of the things we found with the 19 months under ‘Aon limbo’ is that culture could probably be more problematic – not their culture, [but] the combination of cultures would have been more problematic than people thought.”

Other firms mooted as potential acquirers include Galway Holdings and its retail platform Epic, which itself resisted the overtures of Aon in the last two years before going forward as an independent firm, along with Carlyle-backed Hilb.

Epic and Hilb are known to be in discussions over a potential transaction, along with London-based Howden Group and Boston-based Accession Risk Management.

A sale of Woodruff would also add to the growing momentum of major M&A across the insurance distribution landscape, after an acceleration of large-scale deals announced in the last year or so, including Arthur J Gallagher’s $13.5 billion deal for AssuredPartners.

The Insurer also broke the news in December 2023 that Aon would be acquiring middle market specialist NFP and was the first to report that TIH Insurance was entertaining offers for retail intermediary McGriff, which was ultimately sold to Marsh in November in a $7.75 billion deal.

Howden also remains in active deal talks for its long-expected entry into U.S. retail broking, with Boston-based Risk Strategies parent Accession Risk Management Group among the parties with which it is currently engaged.

Meanwhile, in the wholesale space, The Insurer broke the news on Monday that newly-independent wholesaler CRC Group is in active talks to acquire its fellow Stone Point-backed intermediary ARC Excess & Surplus.

CRC’s wholesale rival Ryan Specialty has been especially active in the last two years, having acquired Innovisk Capital Partners, US Assure, Velocity Risk Underwriters and Ethos’ property and casualty business from Ascot in the last nine months, among others.

Woodruff Sawyer and IMA Financial did not respond to a request for comment. WTW declined to comment. Brown & Brown, Epic and Hilb have been contacted for comment.