Overview

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Event OverviewAgents and Brokers in the Property & Casualty, Employee Benefit, and Wholesale/MGAmarketplace are constantly looking to profitably grow and to ultimately maximizeshareholder value.

Agency owners are faced with critical decisions including whether to sell their firmwhile the M&A market is strong, whether to acquire an agency to accelerate growth, orwhether to embark on an internal perpetuation strategy for the next generation, oreven possibly to avoid any M&A strategy and focus on internal growth.

This event can help you can gain insights on how to effectively deal with these criticaldecisions which can “make or break” the success of your firm.

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Mystic Capital OverviewExperienced Professionals:

– Founded in October 2001 by three former employees of The Hartford Financial Services Group, Inc.

– Firm professionals have prior experience at Big 4 accounting firms, large investment banks, and insurance brokers (KPMG, Deloitte, Ernst & Young, PricewaterhouseCoopers, Merrill Lynch, and Benfield Group), and

– Professional designations of employees include Certified Public Accountant (CPA), Chartered Property Casualty Underwriter (CPCU), Certified Insurance Counselor (CIC), Certified Valuation Analyst (CVA), and Chartered Financial Analyst (CFA).

Services:– Mergers & Acquisitions Advisory Services– Due Diligence– Valuation Support Services– Expert Witness– Strategic Consulting– Perpetuation Planning

Locations:– New York, NY– London, UK– Charlotte, NC– Denver, CO

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Mystic Capital Overview‐ Cont’dOur Clients:

– Insurance Agents & Brokers– Insurance Companies– Program Administrators– Managing General Agents (MGA’s)– Managing General Underwriters (MGU’s)– Third Party Claims Administrators (TPA’s)– Insurance Wholesale Agents– Financial Institutions– Credit Unions– Private Equity Groups

Services:– Mergers & Acquisitions Advisory Services– Due Diligence– Valuation Support Services– Expert Witness– Strategic Consulting– Perpetuation Planning

Locations:– New York, NY– London, UK– Charlotte, NC– Denver, CO

Mystic Capital is an internationally‐focused firm with clients in all 50 states and a number of countries globally

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Mystic Capital ExperienceExperienced Professionals:

– Advised on over 180 insurance‐related transactions since firm inception (source: SNL Financial) with an aggregate transaction value in excess of $2 billion

– Consistently ranked among top 3 financial advisors in the U.S. insurance industry in terms of completed transactions

– Know the current acquisition environment through current advisory engagements and constant discussion with active industry participants

– Advising on numerous transactions in advanced deal stages throughout the U.S. and internationally

Firm 2008-2013 # of Deals

Reported Transaction Value (USD)

Marsh, Berry & Company, Inc. 216 714Dowling Hales 135 430

Mystic Capital Advisors Group, LLC 88 379Reagan Consulting, Inc. 71 248Bank of America Merrill Lynch 53 51,083Merger & Acquisition Services, Inc. 47 468Macquarie Capital (USA) Inc. 50 13,116Goldman, Sachs & Co. 44 61,678Morgan Stanley 38 3,801Keefe, Bruyette & Woods 38 3,801

TOP FINANCIAL ADVISORS IN US INSURANCE2008‐2013

Source: SNL Financial

*It should be noted that not all transactions are publicly reported. In addition, many reported transaction do not disclose transaction value

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Today’s Presenters and PanelistsMystic Capital Advisors Group, LLC

– Kevin Donoghue, Managing Director [email protected] C: 617‐901‐8747– Kevin Smith, Director [email protected] C: 704‐232‐6643– Matt Klossner, Director [email protected] C: 917‐742‐4015

Oak Street Funding– Rick Dennen, Chief Executive Officer

Westfield Bank– Matt Sprang, Senior Vice President

AssuredPartners– Stan Kinnett II, Chief Corporate Counsel

Acrisure– Greg Williams, Chief Executive Officer

Aon Affinity– Nabeel Tanveer, Strategic Business Development

Brown & Brown– Vaughn Stoll, Director of Acquisitions

Hub International– Michael O’Connor, Executive Vice President

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AgendaTime Period Topic

8:00 am – 9:00 am Registration & Breakfast 9:00 am – 9:30 am State of the Industry9:30 am – 10:00 am Valuation10:00 am – 10:30 am Tax Considerations10:30 am – 11:00 am Networking Break11:00 am – 11:45 am Deal Structuring for Success11:45 am – 12:30 pm The Nuts & Bolts: Doing Your Due Diligence12:30 pm – 1:30 pm Networking Luncheon1:30 pm – 2:15 pm Navigating the Legal Process2:15 pm – 3:00 pm Making it Work, M&A Funding3:00 pm – 3:15 pm Networking Break3:15 pm – 3:45 pm Internal Perpetuation Strategies3:45 pm – 5:00 pm Perspectives on M&A

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Questions to Answer• How are deal Valued? Valuation & Tax

• How are deals Designed? Deal Structure & Design

• How are deals Vetted? Due Diligence

• How are deals Consummated? Legal Process

• How are deals Funded? Lending

• How are deals done Internally? Perpetuation

• How are deals done Externally? Mergers & Acquisitions

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State of the Insurance Brokerage M&A Industry Seller’s market, Multiples are up

Intense deal competition….. even for smaller deals

Cash at close % and guarantees on deals are up

Still uncertainty in Employee Benefits marketplace, especially for small accounts with ACA exposure

Economic Recovery seems to be fizzling

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Recent History A Large number of transactions

were completed in 4th Quarter 2012, driven by change in capital gains

1st Quarter 2013 was slow due to front loading of transactions in 4th Quarter 2012

Number of deals steadily increased throughout 2013 and has remained steady through 2014

U.S. Insurance Brokerage M&ASource: SNL Financial

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M&A HistoryU.S. Insurance Brokerage M&A

Source: SNL Financial

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Factors Driving M&A• The M&A market is currently robust as there are more positive factors driving

M&A, than negative factors hindering it

Driving Factors

Seller’s Market, Multiples are Up

Cash at Close and Guarantees are up

Uncertainty of Future

# of Brokers/ Fragmentation of Industry

Low Organic Growth / Soft Market

Artificially Low Interest Rates/ Cheap Debt

Active Private Equity Buyers

Aging Ownership of Agencies

Hindering Factors

Economic “Recovery”

Regulatory Uncertainty/ Political Risk

Post Financial Crisis Risk Aversion

Low Equity Valuation/ Book Value for Carriers

Uncertainty of Future/ Fear of Giving Up Control

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Insurance Brokerage Demographics Drive M&A

• Industry is extremely fragmented– The number of independent agencies in the

U.S. is approximately 38,500 per the Independent Insurance Agents & Brokers of America

– 100th ranked broker had $23.6 million in annual revenue in 2013, therefore 99.7% of the firms in brokerage are outside of top 100

– Lots of targets

• Acquisition will continue to be a key factor for growth for larger agencies

• For every firm purchased, the insurance brokerage industry is great at regenerating businesses as individuals and teams “peel off” to start new agencies

2014 Rank

2013 Rank Company 2013 U.S. Broker

Revenue (USD) % change

1 1 Aon, PLC 5,561,106,600 4.6%2 2 Marsh & McLennan Cos., Inc. 5,521,500,000 5.2%3 3 Arthur J. Gallagher & Co. 2,111,340,000 10.7%4 4 Willis Group Holdings, PLC 1,743,840,000 7.3%5 6 BB&T Insurance Holdings, Inc. 1,582,443,400 6.9%6 7 Brown & Brown, Inc. 1,355,502,535 14.0%7 5 Wells Fargo Insurance Services 1,350,022,000 -14.3%8 8 Lockton Cos., LLC 826,448,280 12.4%9 10 USI Holdings Corp. 782,207,827 9.8%

10 11 Hub International Ltd. 768,865,200 21.5%11 9 National Financial Partners 741,974,806 -0.3%12 12 Alliant Insurance Services 546,944,009 8.6%13 14 AssuredPartners, Inc. 345,794,848 46.8%14 22 Jardine Lloyd Thompson Group, PLC 242,642,000 97.6%15 15 Leavitt Group 202,642,000 13.0%

97 97 M.J.Insurance, Inc. 24,913,083 11.3%98 99 Murray Securus 24,393,000 10.3%99 NR Ansay & Associates 24,327,509 13.8%

100 100 Rich & Cartmill 23,607,750 8.2%

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100 Largest Brokers of U.S. BusinessSource: Business Insurance

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Soft Market Pricing is driving M&A• After an extremely soft P&C marketplace

that ran from 2005 through 2011, marketrates in the P&C insurance industryhardened in 2012 and 2013, but rategrowth has slowed to be nearly flat or noincreases in recent months of 2014

• Soft market places pressure on organicgrowth for brokers

• M&A becomes critical to achieve growth

• The Health Insurance marketplace is theexception as rates have continued to rise,but conversely, insurance companies aretightening belts and cutting commissions

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Who is Acquiring?

HOT

• Private Equity Backed Brokers (e.g. Acrisure, HUB, USI, AssuredPartners)– Most active group– Strong capital markets– Light debt covenants– Strong history of success over past several years. Few have failed to make money

• Publicly Traded Brokers (e.g. Aon, MMC, AJ Gallagher, Brown & Brown) – Low organic growth– Soft market– Wall Street pressure to grow

• Insurance Carriers (e.g. Markel, Argo, HIIG)– View acquiring distribution as a cheap way to grow premium if they can write business– Especially competitive with mono‐line MGA and program business where they can bring on

underwriting talent and eliminate a layer of expense– Could also be a defensive measure to keep book

• International Firms (e.g. JLT, Hyperion, BMS/Minova)– For example, London brokers looking to access U.S. market and U.S. Brokers looking to enter

London market

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Who is Acquiring?

COOL

• Regional and Local Brokers – Still very active, but they need to work harder to distinguish

themselves – Small deals that they usually get are being gobbled up by the big guys– Often have to resort to friendlier terms (higher commission to

producers, bonus plans, etc…)

• Banks – Steady decline in bank owned insurance agencies since mid‐2000’s– Realization that banking and insurance brokerage cultures are

different– “Cross‐sell” hard to realize– In capital preservation mode, handcuffed by stress testing– Likely to see continued divestiture– There are a group of banks (e.g. Wells Fargo, BB&T) that are

committed to the insurance brokerage space, but their insurance brokers tend to run almost independently of the bank

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Future Outlook– M&A environment will remain a sellers market until fundamentals change in the economy

– Availability of capital will likely create a more competitive market

– If the market changes, it could turn very quickly (think 2008 financial crisis)

– PE backed brokers are aggressively rushing to execute their strategy before the market turns (get to size, pay down debt, and get out)

– The impact of health care reform has yet to be truly understood and will continue to have a significant effect on M&A, especially in small group

– Larger Brokers brokerages continue move down stream, putting pressure on regionals and locals

– Carriers and International brokers will have an increased presence in M&A, as the U.S. market is attractive

– Banks, credit unions will “stick to their knitting”

Documents

Overview