IBAO CEO’s thoughts on McDougall-McFarlan Rowlands merger

McDougall Insurance’s recent merger with McFarlan Rowlands shows the broker distribution network continues to be a healthy investment choice, Insurance Brokers Association of Ontario (IBAO) CEO Colin Simpson told Canadian Underwriter recently.

Of course, the larger independent brokerage groups become, due to the valuations involved, the smaller the number of potential and suitable acquirers for that business, Simpson said. Combining a small number of larger businesses to obtain scale could be viewed as more logical for a bigger organization than piecing something together over time through multiple transactions.

“It should also not be a surprise that, given the significant value in the broker channel, the Ontario market is attracting material interest from parties not only outside of our industry but [also from] those companies within it [that are] looking for a value investment,” Simpson said.

“Insurance companies that acquire the distribution network have been around for many years and are likely to continue to acquire their own distribution partners, not only as a great financial investment but also to secure the innovative distribution capability of their own products.

“Let’s face it, investing in a business you know and understand intimately makes for a much lower risk investment than investing in one that you do not know as well.”

McDougall president Christian Hutchison told CU that McDougall and McFarlan Rowlands have shared best practices for years — “sharing business ideas, discussing our shared successes and challenges, so we know how we fit together already.

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“Adding a brokerage of this size and reputation that matched the culture of McDougall Insurance is a perfect fit for us,” Hutchison said. “McFarlan has a well-established group division, as well as their own in-house claims adjusting, [and] we see both as a significant opportunity.”

The merger of the two Ontario brokerages represents more than $700 million in annual premiums, 670 employees and 56 office locations. McDougall is a subsidiary of Definity Financial Corporation. In October 2022, Definity increased its ownership interest in McDougall from about 25% to 75%.

Simpson described both brokerages as “excellent businesses that have deep history within the Ontario broker network.

“With any acquisition there is a level of excitement of new beginnings and possibly some angst around possible change,” Simpson acknowledged. “Definity is clear in their announcement that the combined platform of both businesses will be leveraged for future growth opportunities geographically, while leveraging the various business units’ expertise.”

While the bigger transactions seem to draw headlines, Simpson noted anyone investing in the broker channel understands the value of human capital and how essential it is to their future return on that investment.

“Most acquirers in this business also have a clear understanding of the core value of consumer service and therefore have historically continued to invest in both local and specialty expertise post-acquisition.”

And, while larger is not always better and doesn’t necessarily suit everyone, sometimes it works out.

Both large, corporately owned brokerages and independently owned ones have proven to be successful over many decades serving the Ontario customer, Simpson pointed out. “Do not overlook how successful these businesses were prior to being acquired.

“That is the key reason why [someone] wants to buy them! Sometimes, the corporate structure and ownership of a brokerage can be too much in focus.”

That said, a broker’s professional behaviour “will not and should not” differ between brokerage business models, sizes and corporate ownership structures, Simpson said. “Rest assured that the broker network continues to be vibrant and healthy.

“[It] continues to be where you will find a very high concentration of successful entrepreneurs in Ontario, which rightfully attracts both a heightened level of interest of future employees looking to build their careers but also those that wish to invest in a thriving business.”

Feature image by iStock.com/Martin Barraud