Gallagher Snaps Up Eastern In Sale Worth 5-Times Commissions
Eastern Bank Simultaneously Announced Merger With Cambridge Bancorp Along With Sale of Its Insurance Unit
In a dual deal announcement destined to change both the insurance and regional banking landscapes in Massachusetts, Eastern Bank announced its sale of Eastern Insurance and its merger with Cambridge Bancorp on September 19th. In an official announcement outlining the terms of the transaction, the company stated that after “careful consideration of Eastern’s long-term goals ” the bank decided to sell its insurance arm in order to “recognize the valuation premium of Eastern Insurance” while allowing Eastern Bank to return its focus to its “core banking business.”
Dubbing it “The next step in our journey” Eastern announced that it had entered into a definitive agreement with Arthur J. Gallagher to sell its insurance operations for approximately $510 million in cash consideration. The amount represents five-times commission, a new high in the mergers and acquisition marketplace in Massachusetts. On an after-tax basis, the company expects the net gain on the sale will likely be $260 million.
“For more than 20 years, the dedicated team at Eastern Insurance has grown the agency into what is now the third largest bank-affiliated insurance brokerage in the country and a top 50 agency overall,” said Bob Rivers, Chief Executive Officer and Chair of the Board of Eastern Bankshares, Inc. and Eastern Bank in an official statement. “The growth and success of Eastern Insurance was made possible by the leadership of CEO Tim Lodge and the dedicated team who have built the agency into one of the premier insurance brokerage firms in the country. For that and more, I am grateful to each and every one of my colleagues at Eastern Insurance. On behalf of all of their colleagues at Eastern, they will be greatly missed.”
Continuing on, Rivers commented, “Gallagher is a proven insurance leader, and I have full confidence that they will continue the strong level of service our insurance customers have come to expect. We look forward to continuing our relationship with Gallagher as our insurance brokerage partner.”
“Eastern Insurance is highly regarded throughout New England, where they have established a strong culture and demonstrated steady organic growth. Their extensive niche expertise in retail, construction, real estate, hospitality and benefits will enhance the value we deliver to our clients and significantly expand our capabilities in the region,” said J. Patrick Gallagher, Jr., Chairman, President and CEO. “I look forward to welcoming Tim and the Eastern Insurance team to our growing Gallagher family of professionals.”
According to the terms of the transaction, an offer of transition has been extended to the entire Eastern Insurance team upon completion of the sale with Gallagher announcing in its official release that Tim Lodge and his team will remain in their current location under the direction of Patrick Kennedy, head of Gallagher’s Northeast region retail property/casualty brokerage operations, and John Neumaier, head of Gallagher’s East region employee benefits consulting and brokerage operations.
The Genesis of Eastern Insurance
In 2002, Eastern Bank first entered the insurance sphere with its acquisition of Allied American Insurance from Arbella. Shortly thereafter, the bank formed Eastern Insurance Group, LLC, as a bank-owned agency offering property and casualty as well as life and health insurance to both personal and commercial customers. From 2003 until 2022, Eastern Insurance experienced an exponential growth in revenue and size, ultimately operating 22 non-branch offices located primarily in eastern Massachusetts. The main driver of Eastern Insurance’s growth resulted from its 37 acquisitions of other independent insurance agencies in Massachusetts over the years. As a result of these acquisitions, the agency grew its revenue from approximately $28.2 million in 2003 to $99.2 million in 2022, in addition to becoming the Commonwealth’s third-largest insurance broker and the 39th-largest in the country.
As for Eastern Insurance’s leadership, in 2022, the Insurance Group announced the appointment of Timothy J. Lodge to President and CEO of Eastern Insurance as part of its succession planning. For those interested in learning more about Mr. Lodge, please refer to our May 2022 interview with him entitled, “21 Facts About Eastern Insurance’s New President.“
Eastern Insurance Transaction Expected to Close During Q3-2023
Pursuant to customary closing conditions, the sale of Eastern Insurance is expected to close by October 31, 2023.
In further explaining its decision, the company offered that “[o]n a combined basis, the merger and the insurance transaction are expected to be approximately 20% accretive to Eastern’s 2024 earnings per share and approximately 7.5% dilutive to tangible book value per share.” These figures, coupled with “…an expected earnback period of approximately 2.75 years and an internal rate of return of approximately 20%” ultimately made it a “financially compelling transaction” for the bank.
Eastern Bank’s Merger With Cambridge Bancorp
Occurring simultaneously with the sale of Eastern Insurance, Eastern Bank also announced its decision to merge with Cambridge Bancorp, creating the largest Boston-based community bank by deposits with approximately $27.1 billion in total assets, $18.0 billion of total loans, $22.6 billion of deposits and $7.6 billion of AUMA.
Under the terms of the merger agreement, already unanimously approved by both boards of directors, each share of Cambridge common stock will be exchanged for 4.956 shares of Eastern common stock. Eastern anticipates issuing approximately 39.4 million shares of its common stock in the merger. Based upon Eastern’s $13.41 per share closing price on September 18, 2023, the transaction is valued at approximately $528 million and the aggregate consideration represents 114% of Cambridge’s tangible book value* and a 24% premium to Cambridge’s thirty-day volume weighted average price.
“I’ve long admired the success of Cambridge Trust under Denis’s leadership, and I’m excited to welcome Denis and the Cambridge team to Eastern,” said Bob Rivers, Chief Executive Officer and Chair of the Board of Eastern Bankshares, Inc. and Eastern Bank. “As we set our sights on the future, the enhanced capabilities and financial strength created by this merger will allow us to further position Eastern as the region’s local financial partner of choice, delivering enhanced value for our customers and shareholders, greater support for our communities, and increased opportunities for our colleagues.”
Upon closing, Denis Sheahan, Chairman, President and CEO of Cambridge, will become the CEO of Eastern and will join Eastern’s Board of Directors. Eastern’s President Quincy Miller will be promoted to Vice Chair, President, and Chief Operating Officer. Both Mr. Sheahan and Mr. Miller will report directly to Bob Rivers, who will serve as Executive Chair and Chair of the Board of Directors. In addition to Mr. Sheahan, three Cambridge directors are expected to be elected to Eastern’s Board of Directors in connection with the closing.
Going forward, the new entity of the combined wealth management and private banking divisions will operate under the Cambridge Trust brand and leadership.
Sheahan commented, “I am delighted to be a part of bringing together two terrific companies who share common values and vision. I know the Cambridge Trust team will rise to the opportunity ahead and I look forward to working with our colleagues at Eastern as we integrate and deliver exceptional service to our clients.”
The bank merger is expected to be completed during the first quarter of 2024, subject to certain conditions, including the receipt of required regulatory approvals; and approval by Cambridge and Eastern shareholders. All Cambridge directors and executive officers and their affiliates with voting power have agreed to vote in favor of the merger.
