Category: Latest Thinking

Insurance brokerages and agencies have emerged as prime acquisition targets for a multitude of different buyers. These agencies have experienced steady growth over the past several years thanks to a flurry of market tailwinds. Improving macroeconomic conditions and rising demand for insurance coverage in a hardening market has resulted in growing insurance premiums. Considering most brokerages make their revenue from commissions, these rising premiums have positively impacted brokers’ bottom lines.

These dynamics have caught the attention of both strategic and financial buyers looking to acquire businesses with strong cash flows and solid fundamentals. Because of this, competition for deals is high, and agency valuations have also increased significantly.

A number of trends are likely to keep this M&A momentum going throughout 2020. Here are a few dynamics to look out for in the year ahead:

1. Deals, Deals, Deals

The number of transactions taking place in the brokerage sector is charting an upward trajectory. In fact, the total number of deals in the insurance brokerage space hit an all-time high in 2019 with 649 total transactions, up from 643 in 2018, according to Optis Partners LLC. Given the growing profitability of the sector and the amount of capital available to pursue deals, this trend is showing no signs of slowing down. Optis Partners also predicts that 2020 will be another huge year for M&A in the brokerage space.

2. Private Equity Buyers Emerge

One major driver of M&A activity in recent years has been the emergence of private equity buyers in the market. According to the Optis Partners report, brokers owned by private equity firms or with some other form of significant outside capital support were by far the most active buyers of insurance brokers in 2019. These companies represented roughly 66% of all buyers last year. According to PwC, the robust M&A activity expected in 2020 will likely be driven by these private equity and corporate buyers. But sellers must take note — private equity firms may have the capital needed to fund a transaction, they may not be able to provide the structure, resources, technology, industry relationships and expertise that a broker with decades of experience in the industry can.

3. Overall Growing M&A Activity

The M&A trend is not limited to the insurance brokerage industry. According to Deloitte, more than $10 trillion in transactions have been announced across all industries in the U.S. since 2013.3 Approximately 63% of executives Deloitte surveyed expect total deal volume to continue rising in 2020. This trend can present challenges to the insurance brokerage industry and business stability. Organizations can lose customers when they merge with another organization that does business with a different broker.  Insurance brokers are also facing pressure in the fight for talent. As companies get larger and offer employees more resources, it makes it difficult for smaller, middle-market brokers to retain the talent they’ve spent years training and developing.

Building a Plan for the Future

As the amount of M&A activity continues to rise, brokers of all sizes must begin to think about formalizing their strategy. With agency valuations and competition for deals increasing, many business owners considering a sale find themselves in a favorable position. However, these conditions will not last forever, and brokers do not want to miss their chance on an attractive opportunity.

To learn more or contact our team, visit our M&A Opportunities web page.

This piece originally ran in Property Casualty 360 .

Nearly half of all mergers and acquisitions (M&A) fail to create shareholder value, according to Boston Consulting Group. One typical reason why is that too many agreements are focused on the deal itself and not what happens after signing on the dotted line.

Post-merger integration cannot be an afterthought. Far from it, the details of how organizations will come together are critical to any deal’s success and should be addressed far in advance of any agreement being finalized.

For leaders who have gone through an M&A transaction, hindsight is often 20/20. Even in the most successful deals, there are countless lessons learned and best practices. At Conner Strong & Buckelew, our senior leadership has key insights into what makes mergers and acquisitions successful. Below are a few key takeaways all stakeholders should keep in mind before entering the M&A process.

1. Prioritize Collaboration

As early in the process as possible, it’s a good idea to bring together senior leadership from all involved parties for an in-person session to discuss the integration process at a high level. At this session, it is important that all voices, especially the selling party, are heard. No matter how the deal is technically structured, a one-sided process will start integration off on the wrong foot.

The selling party must be given a chance to voice their thoughts and concerns. These folks know the most about the business being acquired, its operations and any potential integration pitfalls that may lie ahead. In our experience, business integrations are most successful when the focus is on collaboration and making the most of shared resources.

2. Establish Clear Communication Strategies

When a deal closes, many people’s lives are affected overnight. Both the buying and selling parties are responsible for effectively communicating the news to their customers, employees and other interested stakeholders. A hasty email or one-off mailer will not suffice. Companies must clearly and honestly communicate the timeline of the integration, how employees may be affected and what changes customers can expect — if any.

It’s also often beneficial to share some key details on the rationale behind the deal. The last thing any business wants to do is upset their employees or customers. Yet too often, this communication strategy is overlooked and underappreciated by business leaders.

3. Seamlessly Integrate Technology

When two businesses come together, they typically each have their own data storage systems, employee software and customer-facing technology. One company may possess a more robust technology offering than the other. Either way, integrating the two systems can be disruptive for customers and employees. Business leaders can find the benefits in these disparate technologies by taking a few key steps:

• Create a detailed technology integration plan.
• Communicate the plan clearly to employees and customers.
• Consider hiring outside experts skilled in these types of integrations when appropriate.
• Train employees on the new technology and tools available to them so they can begin
• realizing the benefits right away.

Post-merger Integration – The Key to Successful Deals

Based on our experience navigating M&A transactions, we know the work is not over just because the deal is done. In many ways, it’s really just beginning. That’s when the hard work of integrating the organizations begins. That’s when meaningful collaboration, effective communication and successfully merging technologies really come into play. These steps cannot be an afterthought – often they’re the factors that lead to a successful M&A deal.

To learn more or contact our team, visit our M&A Opportunities web page.

By Tammy L. Brown

Designing health and group benefit plans has become a challenging process.

With ensuring compliance with the Affordable Care Act, selecting insurance carriers, setting employee contribution limits and much more, administrators, HR departments and business leaders are faced with more decisions than ever before.

Not to mention, the healthcare landscape has become increasingly complex. Healthcare and pharmacy costs have skyrocketed, providers are administering care in new environments, and new technologies are revolutionizing how individuals receive care. In this environment, plan administrators are faced with a unique set of challenges when designing health and group benefit plans.

Thankfully, the volume of healthcare and patient data has exploded in recent years, creating an opportunity for plan administrators and HR departments to make more informed, strategic decisions. When leveraged correctly, using data to design plans can boost participation, keep costs down and deliver a superior end product to employees.

However, leveraging data in this way requires a certain level of expertise. Here’s what employers need to know before diving in.

What specific data is most useful?

The high volume of healthcare data available to decision makers can be overwhelming at first. Experts predict the total volume of data in the industry will grow faster[1] than any other industry in the next five years.

Instead of looking at this data in its entirety, employers should first determine what type of data will help them make better decisions. For example, census data that shows how many families will join the plan as opposed to individuals, the average ages of participants and other demographic information can help paint a clearer picture of the employee population in need of coverage. Employer benefit offerings are often tied to specific populations and industries.

Behavioral data can also help decision makers understand how employees are using their benefits. For example, the amount of healthcare dollars spent on in-network versus out-of-network providers can give employers a sense of whether or not they should consider changes to their network of providers. The setting in which patients receive care dramatically affects the end cost. For example, assessing whether patients tend to visit urgent care facilities or hospitals can provide powerful insights to plan administrators looking to reduce expenses.

Also, employers can take a closer look at claims information by diagnosis code to determine how many employees need chronic care requiring expensive treatments. With this information, they can make adjustments to the plan to better account for ongoing claims and expenses. Members can then be directed to seek care in the most effective setting to drive favorable outcomes.

Leveraging data analysis capabilities and expertise

After identifying useful data, a level of expertise is required to leverage this information effectively. Data warehouses have emerged as valuable service providers that can help employers. Not only do these services store and organize the data, they also provide services to help employers analyze it.

An insurance broker that brings new technology and experience analyzing healthcare data can also add value to this process. For example, actuarial platforms can help model plan design changes and the impact on costs and utilization. Claims repricing systems can measure a carrier’s provider network discounts to ensure a thorough analysis is performed when evaluating networks. While all carriers contend they alone have the best discounts off of charges, consultants and employers need to focus more on net cost. Other tools are available that capture all of a group’s claims and utilization experience to allow for a panoramic drill down analysis into drivers of cost and gaps in care so that specific actions can be taken to address cost and quality proactively.

Gaps in care identification will reveal opportunities to support wellness programs. Employers should look to promote programs that focus on diabetes, high blood pressure, obesity and other chronic conditions. Member contributions may quite often be linked to completion of a health risk assessment, smoking attestations and routine connections with a health coach to encourage behavioral changes.

Mitigating pharmacy costs

The cost of pharmaceutical drugs has skyrocketed in recent years. According to the most recent data from the CDC, 9.5% of all national health expenditures[2] in 2017 were spent on pharmaceutical drugs. This has led many businesses to take a closer look at how to bring down these costs for their employees.

Data analytics can help employers accomplish this in a number of ways. Employers can look into which name brand prescription drugs are close to having their patent expire. Considering the cost of generic drugs are far less than brand name drugs, employers can make plan decisions that incentivize the use of these less expensive, yet equally effective, alternatives. In looking at claims by diagnosis code, employers can also get a sense of how many employees will be in need of expensive drugs and treatments. Additionally, they can look at which drugs are currently in the clinical trial stage and what impact they may have on overall costs once approved.

You don’t know what you don’t know

Healthcare data can provide valuable insights that can save companies money and help them deliver a better experience to employees. Yet many employers today are simply unaware of the powerful cost-saving advantages data analytics can provide their business. The first step in taking advantage is to gain awareness of this information. From there, an insurance broker with experience tracking down, organizing and analyzing healthcare data can help administrators and HR professionals make more informed decisions around their benefits plans.

[1] https://www.businesswire.com/news/home/20181126005585/en/Seagate-Launches-New-Data-Readiness-Index-Revealing-Impact

[2] https://www.cdc.gov/nchs/fastats/health-expenditures.htm

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When it comes to mergers and acquisitions, it’s not unusual for potential buyers to come to the table with a long list of questions to vet the business they want to acquire. But there’s often less emphasis placed on the questions the seller may have for the potential buyer.

That’s an oversight that can derail meaningful deals and degrade partnerships. Asking the right questions can help qualify prospective buyers, streamline the process and ultimately ensure a win-win scenario for all parties involved.

Before signing on the dotted line, everyone considering selling a stake in their business should ask a few critical questions of the prospective buyer. Below are 5 questions to start the conversation:

1. What is Your Experience with M&A and Business Integrations?

While many businesses may be quick to discuss the number of transactions they’ve made over the last several years, sellers should inquire further into their experience integrating companies. The integration process is often overlooked, but remains critical to the success of any transaction. Buyers must be able to articulate their plan for executing a successful business transition that benefits customers and employees. It can also be helpful to ask about prior examples as well as speak to any references they can provide. This can offer the seller insight into how the process will impact their customers and employees and set the transaction up for success.

2. What First Attracted Your Interest in Our Company?

In the most successful transactions, buyers are attracted to more than just the target’s book of business. Sellers should consider asking prospective buyers what initially sparked their interest in the company to see if there is a high level of alignment between the two companies. Buyers should be able to articulate the unique value a potential target presents to their business. This will provide decision makers with insight into what aspects of the business the buyer intends to maintain and what they may change in the integration process. It’s important for both buyers and sellers to agree on the aspects of the business worth maintaining in the long run.

3. What Will Post-merger Integration Look Like?

Owners and executives should enter into a transaction with a full understanding of how the deal will impact current customers, employees and vendors. Business leaders can start by asking the buying party about their vision for the combined entity. What role will existing leadership play in the day-to-day operations? Will the selling company keep its own brand and office locations? Will employees be forced

to relocate and will their job roles materially change? How much autonomy will existing leadership have in the future of the business? These are critical questions that both parties must align on before inking a partnership.

4. What’s Your Company’s Five-year Plan?

For any transaction to reach its full potential, it is important that the company be featured as an integral part of the buyer’s long-term business plan. Strategic buyers have a clear idea for what the near and long-term future of their business holds and are looking to augment that growth and complement its capabilities by making acquisitions. Successful transactions start out with a firm understanding of how the partnership will help the combined entity reach its goals. Selling parties should be clear on what their role will be in this plan.

5. Can We Maintain Our Company Culture?

Beyond making sense from a business perspective, business leaders should ensure there is cultural alignment between the two companies before merging. What is the dress code? What is the paid time off policy for employees? Are workers given autonomy over their positions, or do orders come down directly from management? Any major change to these areas can be disruptive to a business. But when the two companies align, the integration runs smoothly. Ensuring a cultural fit between the two companies is an important yet often overlooked component of a successful merger or acquisition.

While the above five questions are not a comprehensive list, they offer a solid starting point for any business owner considering selling a stake in their company. Entering into a merger or acquisition should never be rushed. To ensure alignment, both from a business and cultural perspective, owners and management must engage in honest conversations around the process, the integration and the desired end result.

To learn more or contact our team, visit our M&A Opportunities web page

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Loss of manufacturing capability as a result of regulatory non-compliance can have a devastating impact on biotech, pharmaceutical or medical device companies and can happen anywhere along a company’s supply chain. Please fill out the form below to download the article about the impact of regulatory action on life science                                                                    companies.

Many doctor visits today are plagued by difficulties scheduling appointments, long wait times and rushed conversations with the physician. It’s a frustrating experience for patients and challenging for organizations looking to prioritize member health without productivity taking a hit. Please fill out the form below to download the article about the value of on-site and near-site health centers.

Construction and real estate companies face large risks and have significant property and casualty insurance needs. These risks are growing in severity and frequency, creating a challenging environment for securing adequate insurance coverage at a reasonable rate. Please fill out the form below to download the article about securing property & casualty coverage for construction and real estate.

Parametric insurance solutions offer a means to guarantee direct payout after a qualifying event and protect against unpredictable but potentially devastating risks in ways traditional insurance packages cannot. Please fill out the form below to download the article about parametric insurance.

BY TRAVIS SHAFFER & DONNA CHIANCONE

Imagine you are serving as the general contractor for a massive urban development job, responsible for building a skyscraper in downtown Philadelphia. Everything is going smoothly until the project is 90 percent complete and the property developer informs you they are not going to pay you in full for the work because of an issue with the electric wiring. You know your company or your subcontractors adequately installed the wiring and feel this refusal to pay is unjustified. What are your legal rights to fight this claim?

Failing to receive full payment for a job is a major nightmare. Unfortunately, it happens all of the time. The good news is there are tools available to contractors that can help ensure they get paid for their work.

There are two main recourses in these situations depending on the type of project: mechanic’s liens filed against the property developer and payment bond claims.

A mechanic’s lien is a security interest in real property that secures payments to a party who has improved the real estate with labor, materials or supplies.

Payment bond claims are another tactic used by government contractors that work on publicly-funded projects. All public projects will require the general contractor to provide a payment bond. Some private jobs require bonds as well.

Mechanic’s liens severely handcuff an owner when it comes to their property. They can cause the bank financing the construction to stop monthly draws and can prevent the property owner from receiving permanent financing and a certificate of occupancy until the lien is satisfied with either cash, a letter of credit or a lien surety bond.

Because these liens carry serious consequences for the property owner, before a contractor can file for a mechanic’s lien or a payment bond claim, there are a few considerations they must take into account. At Conner Strong & Buckelew, we have dedicated teams that provide guidance in cases where contractors are not getting paid.

Here are the four steps to take if you are a contractor exploring your options for using mechanic’s liens or payment bond claims.

1. Identify the best tool: Mechanic’s lien versus payment bond claims

Mechanic’s liens are a great tool to assist contractors in getting paid on private real estate jobs, but mechanic’s lien laws do not apply to public projects. Instead, these contractors are protected under payment bonds.  If a contractor isn’t paid in a timely manner per the terms of the contract, they can file a claim on the payment bond and potentially receive payment that way.

There are a few other important distinctions between these two strategies. Liens create a security interest in the improved real estate for the amount due and owed. Requirements also vary from state to state. Payment bonds are slightly different in that they provide an underwritten payment guaranty for the amount due. It creates a financial obligation to pay subcontractors per the terms of the construction contract, and the process of filing a claim against a payment bond is typically detailed in the bond form.

2. Build a checklist: What contractors need to file a lien

For contractors filing for a lien, there are a few pieces of information they will need to have no matter what state they’re filing in. Below are a few of the most important pieces of required information:

• Claimant’s name, the property description and owner
• Description of unpaid labor, materials and/or supplies
• Last date of work or materials supplied
• Agreement date and parties involved
• Amount due and owed

Certain delay damages, materials or work not incorporated into a renovated property and general conditions costs could exclude a contractor from qualifying for a lien. It is also important to remember that landscaping work and other land improvements not incidental to construction oftentimes do not qualify a contractor to file for a lien.

3. Understand the correct timing: Hitting the filing deadlines

Depending on which state the contractor is operating in and whether or not they are filing for a mechanic’s lien or a claim on a payment bond, the deadlines for filing vary. Below is a reference chart to help contractors operating in Pennsylvania and New Jersey understand the timing around this process. If you are operating in another state, contact a Conner Strong & Buckelew representative and we will help you ensure you have the correct filing timeline.

4. Know if your filing will qualify: Eligibility and the extension of lien rights

Eligibility for filing a mechanic’s lien typically depends on whether or not the contractor has a “contract” with the real estate owner. Depending on the state, the definition of a contract as recognized by the courts varies slightly:

• In New Jersey, a contract constitutes as any written agreement signed by the party against whom the lien is asserted. It must also detail the respective responsibilities of the contracting parties, including the price that was agreed to be paid. It should also explain the benefit or improvement to the property that the contractor was supposed to perform.
• In Pennsylvania, a “contractor” is someone who, by contract with the owner, erects, constructs, alters or repairs an improvement or any part of the real estate. It also includes someone who furnishes labor, skill or superintendence.

The scope in which liens can be applied is also limited. In both Pennsylvania and New Jersey, payment bond claims and mechanic liens can extend to general contractors, first-tier subcontractors and second-tier subcontractors, but no further. If you are operating in another state, contact a Conner Strong & Buckelew representative and we will ensure you understand your eligibility qualifications.

Bringing it all together

Mechanic’s liens and payment bond claims are necessary tools contractors must know how to leverage in the event they are not being paid in full for a job well done. Knowing exactly when and how to deploy these tactics can be a difficult process. To ensure the lien and claims are filed for properly and on time, contractors are wise to surround themselves with third-party insurance and surety brokers as well as attorneys who are well versed in this area. Otherwise, these payment issues can turn into hung receivables and can have an adverse impact on a contractor’s bank and surety lines of credit.

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 Many employers are realizing there’s a better way to connect new hires and current employees to benefits information and resources. Benefits automation has emerged as a powerful tool to boost employee engagement, reduce administrative efficiencies and streamline compliance. Please fill out the form below to learn more about parametric insurance.