mar counterpoint-april2016 layout - marshberry · market to buy or sell—or not—based on our...

A P R I L| 2 0 1 6

www.MarshBerry.com

helping clients learn, improve and realize their value

Transform YourBusinessMarshBerry opens eyes to a different kind of agency with a 360° approach to transformational change.

marshberrymarshberrymarshberry

n Process Makes PERFECT

n Avoid a CLOSING CRUNCH

n Driving Profitability Through EXECUTIVE & MANAGEMENT COMPENSATION

n Broker TEAR SHEET

Contact us today if you’re serious about tomorrow.

Data. Experience. Relationships.800.426.2774 • www.MarshBerry.com

Securities offered through MarshBerry Capital, Inc., Member FINRA and SIPC, and an affiliate of Marsh, Berry & Company, Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 (440.354.3230).

MARSHBERRY

#1 M&A ADVISOR* BY SNL

FINANCIAL. AGAIN.

*Merger & Acquisition Announced Transactions in Insurance Brokerage (1999-2015); Ranked by Total Number of Deals

n PG. 4 Marshberry 360: Transform Your Business

n PG. 8 Process Makes Perfect

n PG. 9 Metric of the Month • Driving Profitability Through Executive & Management Compensation

n PG. 10 Avoid a Closing Crunch

n PG. 12 Quarter in Review Q&A

n PG. 13 The Broker Tear Sheet

n PG. 16 On the Horizon

TABLE OF CONTENTS

CONTRIBUTING AUTHORSMEGAN BOSMA, Senior Vice President

VALERIE DEMELL, Executive Vice President

BRIAN EGGLESTON, Recruiting Team Leader

CANDICE ENSINGER, Director – Research

KYLE HOEFT, Consultant

JUSTIN NOCKENGUST, Financial Analyst

PHIL TREM, Senior Vice President

Let’s talk.

Engage with MarshBerry

28601 Chagrin Blvd., Ste. 400, Woodmere, OH 44122

www.marshberry.com

@marshberryinc

facebook.com/MarshBerry

linkedin.com/company/marshberry

April Spotlight

MGA, MGU, Wholesale & Program Manager Study:

NOW OPENMarshBerry is aiming to create insight into the wholesale broker, managing general agent (MGA), managing general underwriter (MGU) and program manager space through our second annual 2016 Market & Financial Outlook Study for Specialty Distributors. Your confidential results will create, what we believe to be, a unique collection of data that seeks to answer questions specific to specialty distributors, such as:

n Do you know how your company compares financially to peers and competitors?

n How do your company’s compensation costs compare to the industry?

n What are companies doing to prepare themselves for perpetuating ownership?

The Study, which should take less than 20 minutes to complete, should be completed by one of the following: Chief Executive Officer/President, Chief Financial Officer or Chief Operating Officer.

The Study is open until May 13, 2016 at: www.MarshBerry.com/2016ISD Results will be collected and aggregated (only averages will be presented) into a report that will be published in mid-September 2016. One complimentary download of the report will be available to companies that fully complete the survey*. Both binding and non-binding authority financial perspectives will be presented. No specific company results will be published or identifiable.

*Only fully completed survey responses, and those who provide their email address, are eligible for one complimentary PDF copy of the MarshBerry 2016 Market & Financial Outlook for Specialty Distributors report. Partial completes are not guaranteed to receive a complimentary report.

4 April 2016 | CounterPoint

Transform YourBusinessby Phil Trem, Senior Vice President440.392.6547 | [email protected]

MarshBerry opens eyes to a different kind of agency with a 360° approach to transformational change.

marshberry

Securities offered through MarshBerry Capital, Inc., Member FINRA and SIPC, and an affiliate of Marsh, Berry & Company, Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 •440.354.3230

5CounterPoint | April 2016

MarshBerry opens eyes to a different kind of agency with a 360° approach to transformational change.

We hear this story almost every day from agency owners: They believed they were on the right track, until they realized they weren’t.They thought they were successful because their firms had been around for decades, or because they continued to secure new business and retain longtime clients. They figured they were a healthy organization because their numbers were steady.

MarshBerry opens their eyes to a different kind of agency: One that is attracting aggressive, young producers and diving deep into niches—a firm that is implementing technology that empowers producers. A culture that is dynamic and includes diversity—age stratification so perpetuation is a reality. Then a light turns on.

Even if you’ve had success in the past, we believe that now is the time to take a good, hard look at your organization and make important adjustments to the way you currently do business so you can do more than just survive. Transformational change is what we call this process of creating a detailed strategic plan—mapping out a blueprint for the future. It’s challenging. It means trying new things that can feel uncomfortable at first. (Like exploring a different compensation structure, or trying new technology.)

Firms that are prepared to take on transformational change will thrive and grow organically to help them compete in today’s market, where mergers and acquisitions (M&A) is the dominant theme.

The big question is: How? Where does an agency owner get started?

Begin with MarshBerry 360Four years ago, MarshBerry launched a national conference with four “stops” across the country so we could provide in-depth insight on industry best practices and share our experiences working with clients. We realized that we spend many hours working with clients every year within the four walls of agencies just like yours. MarshBerry 360 is a way

to gather industry peers in one room, and to dive deep into business strategies and trends that matter today.

This year we’re building our theme around transformational change. Our “road show” kicks off in May 2016 and includes: Chicago, Orlando, New York City and Las Vegas. We’re building on the growing success of this event and bringing to you a panel of institutional acquirers that will weigh in on the economy, the current acquisition environment and the importance of human capital management from a buyers perspective. We’re also getting granular with strategic planning to give you a blueprint for the future. You’ll leave with tools and concepts we feel you can implement immediately.

We will not be handing out a formula or plan for you to follow. This is your agency journey. But we will provide the insight and tools for you to personalize a plan to help reboot your culture, hire smarter, grow organically and make tough decisions in this M&A environment.

Ready? Here’s a sneak peek of what attendees experienced last year and what’s in store for 2016 MarshBerry 360.

Creating Your Own BlueprintWe had record attendance at the 2015 MarshBerry 360, with approximately 76% of attendees being executives, and we introduced a been-there-done-that perspective to the conference with a series of dynamic panel discussions. Panels in three cities included former shareholders of independently owned agencies who sold their businesses.

There’s nothing like hearing the story straight from the source.Our shareholder panel members talked about what led them to the decision to sell their firms. They shared insights about how they were running their businesses prior to the sale, and what lessons they learned (some the hard way). Their message echoed what MarshBerry sheds light on in terms of creating a sales culture, elevating the focus on tech and talent, and creating a blueprint for the future. If you have a plan for “what’s next,” you’ll be in the driver’s seat.

A 2015 panel at the Chicago MarshBerry 360 included buyers who discussed how they evaluate potential sellers. We learned about the process of selling and why firms sell. And, we heard that theme again—about owners believing they were on the right path until they realized they weren’t. Their story was written for them because they continued with the same old way of doing business.

Securities offered through MarshBerry Capital, Inc., Member FINRA and SIPC, and an affiliate of Marsh, Berry & Company, Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 • 440.354.3230


We encouraged attendees to think seriously about the future and take action. Create a blueprint for 2020: a five-year plan that includes growth, hiring, culture, sales management, compensation and more. We addressed the components of a plan that agencies need to write their own stories for the future.

MarshBerry 360 reaches all insurance industry professionals, from retail to wholesale and professionals who support the industry. This year, we’re focusing again on building a platform for the future—a launch pad for transformational change.

Building a Platform for Transformational ChangeAt MarshBerry, we conduct a great deal of studies to gain measurable insight into what agencies are facing today and how they must position themselves to thrive tomorrow and beyond.

Our 2015 Organic Growth Trends Report is one example. Through this study, we can help firms develop and make fundamental changes in the way they do business to better position their firms for growth in and out of cycle. At the 2016 MarshBerry 360, we’ll focus on these key aspects of igniting change.

Culture: What kind of firm do you want to be? We know that growth-oriented agencies have a strong culture because owners are reinvesting “tech and talent” at their firms. They are creating a work environment of contagious excitement that lures in top producers and support staff. For agencies that have strong cultures, what will it take to propel the firm to the next level? For those who have a stagnant workplace, what first steps can the agency take to revamp the old? We’ll explore these topics.

Tech & Talent: The same-old won’t cut it in today’s market, and dynamic firms should always be seeking out fresh talent and developing their people. Unfortunately, many owners wait to hire until there’s a position open. They’re losing out on opportunities to capture top producers and, ultimately, create a thriving, energetic workplace. Technology is a key factor in propelling agencies forward and attracting premiere employees. What is your firm doing in the tech and talent arena? What could you be doing better?

M&A: Mergers and acquisitions are prevalent in the insurance industry today. Firms need to understand what’s fueling M&A, who’s buying, who’s selling, what makes an agency desirable, and how firms can grow organically if they so choose. Whether you’re in the market to buy or sell—or not—based on our experience we believe you’ll gain a competitive advantage by knowing what your “neighbors” are doing in this space.

Participate in Change: Get The ToolsMarshBerry 360 provides an opportunity to network with industry peers, hear from buyers and sellers, and learn what makes top firms successful. We give you the presentations and encourage you to take them home and start change tomorrow.

We believe that all professionals in the insurance industry can benefit from attending. That includes independently held firms in the retail or wholesale space, employee benefit professionals, bank-owned insurance agency executives, attorneys, CPAs and tax advisers.

At MarshBerry 360, we focus on growing your business. If you’re on board for getting better at what you do in the insurance industry, this conference is for you. n

Register online for $425 (50% discount) using code MB4-50 at www.MarshBerry.com/360

marshberry

DATES AND LOCATIONSMAY 3 Chicago, IL MAY 5 Orlando, FL

MAY 17 New York, NY MAY 19 Las Vegas, NV

SPONSORED BY:

PLATINUM SILVER STRATEGIC PARTNERS



John Wepler, Chairman & CEO

John M. Wepler joined Marsh, Berry & Company, Inc. (MarshBerry) in 1991 and is Chairman, Chief Executive Officer and the largest shareholder. John is a frequent keynote speaker on organic growth management, valuation enhancement

solutions, mergers and acquisitions (M&A), strategic business planning, ownership perpetuation and financial management at national conferences, agent association meetings, insurance carrier elite meetings and executive leadership forums.

John has extensive knowledge in the area of merger & acquisition advisory, having personally advised on over 150 M&A transactions since joining the firm. He currently maintains the Series 62, 79, 99, 24 and 63 FINRA Registrations through MarshBerry Capital, Inc., the affiliated FINRA-registered Broker/Dealer of Marsh, Berry & Co., Inc.

Phil Trem, Senior Vice President

Phil joined Marsh, Berry & Co., Inc. (MarshBerry) in 2010 and was promoted in 2015 to Senior Vice President. Phil is a key contributor to MarshBerry’s M&A services division and is responsible for deal execution on both buy-side and sell-side

transactions. He has extensive knowledge in the areas of acquisition analysis, due diligence, deal negotiation and integration planning.

Aside from his responsibilities within the firm’s M&A division, Phil is a regular contributor to MarshBerry’s consulting practice. His consulting activities involve internal perpetuation planning, strategic business planning, financial and organizational development, and compensation strategies. Phil currently maintains the Series 62, 79 and 63 FINRA Registrations through MarshBerry Capital, Inc., the affiliated FINRA-registered Broker/Dealer of Marsh, Berry & Co., Inc.

marshberryMeet the Speakers

Nick Kormos, Vice President

Nick Kormos is Vice President and Unit Leader of MarshBerry’s Sales Performance Division. His team focuses on producer training/ coaching and agency sales culture development.

Nick has over 12 years of sales and sales management experience and spent more than six years of his career in production and management roles at an independent insurance agency. He has presented on a multitude of topics surrounding agency growth, producer sales tactics, and organizational infrastructure. He also leads and facilitates SalesPro training sessions and organic growth best practices seminars hosted by MarshBerry.

Tommy McDonald, Vice President

Tommy McDonald joined MarshBerry in 2008 and plays a major role in preparing valuation reports, perpetuation plans, compensation plans, sales performance

engagements and other general consulting projects.

His primary responsibility is to oversee our executive Peer Exchange Networks and the delivery of partner benefits and to provide guidance and direction to help network partners reach their goals. Tommy has presented for educational seminars, sales management training, insurance industry meetings and executive leadership forums. He is also a frequent contributor to insurance-related articles.

A standardized and consistent hiring process is vital to any successful hiring program.


For the Record

by Brian Eggleston, Recruiting Team Leader 616.828.5533 [email protected]

Process Makes

PerfectIf an organization is unable to source talented individuals, effectively evaluate their skill sets and move candidates through the hiring process quickly, qualified candidates may be lost to the competition.

A recommended timeline is 4-6 weeks from source to hire. It is essential to have communication and engagement with candidates throughout the hiring process as it can influence your organization’s brand and ability to allure top candidates. However, the top performing agencies know that beginning with a systematic hiring process can maximize their hiring success.

Candidate ProfileWhat are you looking for? An organization must first build a candidate profile outlining the framework of the type person that they are looking to employ at their firm. High performing organizations spend the time brainstorming and committing to a standardized hiring process that outlines competencies, previous experiences, presentation skills, specific resume items, and even utilizing current high performers as examples of the type of people that can succeed in your business.

Don’t Be LazyStreamlining the interview process will produce better results. Many agencies experience inconsistencies in the results of their hiring process - an inconsistent hiring process yields inconsistent results. The interview process should be well defined as to each specific stage and the objective of that stage within the process; this would include how to sourcing candidates, review resumes, conduct phone interviews, in-person interviews, offers and hiring.

Length of the process is rarely considered but is crucial to hiring success. A timeline should be set for the length of the process beginning with the sourcing of candidates through each stage and ending in a hire. Often, organizations lose qualified candidates because they take too long to make a hiring decision. Consider how many stages are included in the hiring process and examine if each step is necessary.

Continued on Page 11

THE HIRING PROCESS: EFFICIENCY IS KEY

ACTIVITY FOR ONE HIRE

Source: MarshBerry opinion and experience.


METRIC OF THE MONTH

MarshBerry defines Executive & Management Personnel as the individuals acting in the capacity of high-level management positions, which typically include individuals with the Chief Executive Officer (“CEO”), President, Chief Operating Officer (“COO”), and Chairman of the Board titles. As would be expected, in an independent insurance agency, these individuals are often the owners.

This can result in large variances in compensation paid to Executive & Management Personnel due to various factors, a few of which include: management style, entity structure (C Corporation vs. S Corporation), and the number of owners. Also, it often includes excess owner return.

EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) represents the profit of an agency, which can be distributed to owners or used to reinvest.

When thinking about implementing Transformational Change— the theme of this publication and the upcoming MarshBerry

360 Seminar Series—a great way to begin this process can be to right-size Executive & Management compensation. This will set the tone of your firm and show your employees that you are serious about the change. During this process it is critically important to have the discipline to use the compensation savings to reinvest in the firm. However, these investments should be monitored to ensure they are producing an adequate return (i.e. driving profitability), as displayed in the chart. n

Driving Profitability Through Executive and Management Compensation Total Compensation Expense, payroll plus retirement and non-retirement benefits, is by far an independent insurance agency’s largest expense. On average, it accounts for $.66 of every commission dollar generated. The Executive & Management portion of total compensation tends to have a level of discretion.

*Salary plus bonus Source: MarshBerry proprietary financial management system, Perspectives for High Performance (PHP)

The chart displays both Executive

& Management Compensation* and EBITDA as a

percentage of Net Revenue. This data was segmented by revenue size.

The size of each bubble represents

the average revenue for each

segment.

DRIVING PROFITABILITY THROUGH EXECUTIVE & MANAGEMENT COMPENSATION

Dealmaker’s Dialogue

Closingby Valerie DeMell, Executive Vice President440.392.6571 [email protected]


Purchase agreement negotiations can be time consuming. Many other items need to be accomplished before closing a merger and acquisition transaction (M&A) that, if not addressed, can leave a seller in a panic stricken, chaotic state. Buyers will handle each of these items differently so it is important to ask the right questions. Buyers need to be sensitive to these areas and communicate their process early.

Avoid a

Crunch

E&O Tail PolicyMost buyers require a seller to buy a tail policy on the seller’s Errors & Omissions (E&O) coverage (also Employment Practices Liability Insurance and Directors & Officers Liability Insurance) for a period of years following closing. Not only is this a cost the seller needs to consider in its cash flow, but it also needs to secure the policy by the closing of a transaction.

Landlord ConsentsWhile some buyers may waive the requirement to have the landlord consent prior to close, it is commonly required. Many landlords won’t have the same sense of urgency that you have so start the process weeks (and not days) before the scheduled close. Some landlords may want to see the buyer’s financial statement which takes even more time.

Employee Communication and AgreementsAnnouncing the transaction to employees can be stressful if not properly planned. Timing is critical and can vary depending on the circumstances. The seller wants to be sure the transaction is going to happen yet many buyers require all employees sign some type of agreement prior to closing. Non-client facing employees will generally sign a standard confidentiality agreement compared to a more stringent agreement signed by producers and

Closing / Integration ConsiderationsE&O Tail Insurancen 3-6 year tail customaryn Paid by sellern Need secured at closing

Landlord Consentsn Usually required at closen Buyer may waive requirementn Landlord may request buyer financials

Employment Mattersn Timing of announcementn Agreements to be signedn Employee Benefit Transitionn Employee Payroll Conversion

Insurance Company Contractsn Consent / notification requirementsn Unique seller markets

Financial and Accountingn Financial Statement cut off periodn Financial Statement mapping

Source: MarshBerry opinion and experience.

Securities offered through MarshBerry Capital, Inc., Member FINRA and SIPC, and an affiliate of Marsh, Berry & Company, Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 • 440.354.3230


client facing service personnel. An organized process for the announcement, meeting the buyer, answering employee benefit questions and distributing agreements can help alleviate much of the pain.

Payroll, Employee Benefits and Accounting TransitionsBoth buyer and seller are aligned in wanting a smooth transition of payroll and employee benefits for the employees. Buyers can handle transition in different ways so it is important to discuss this up-front. Key questions include: 1) What employee information is needed and when will the transition to the buyer’s payroll system occur? 2) Will employees change over to the buyer’s health insurance and retirement plans immediately at close and if so what happens to items such as employee 401(k) loans and health care deductibles?

Insurance Company ContractsMost purchase agreements will state that all consents on agreements are required at close, and most insurance company contracts have a notification or consent requirement. Practically speaking, if the buyer has an appointment with the carrier, notification can be done post-closing. The key is to identify seller carrier contracts that the buyer does not have. These should be discussed to see how best to handle notification and consent.

While every transaction is different, there are many integration details that need to be addressed. The key is to start discussions early and involve the right people who will be responsible for working with the buyer to ensure the transition goes smoothly. Starting off on the right foot with your new partner could go a long way to ensuring a successful long term relationship. n Securities offered through MarshBerry Capital, Inc., Member FINRA and SIPC, and an affiliate of Marsh, Berry & Company, Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 • 440.354.3230

For the RecordContinued from Page 8

Behavioral Based InterviewingYour goal should be to have each candidate undergo a similar hiring experience. By asking candidates identical questions an organization ensures a consistent comparison of skills and credentials. This allows the organization to progress with only the top talent. The participants involved in the hiring process should be selected prior to execution of the process. Each participant should be equipped with the agreed-upon criteria and should understand the role and requirements of the open position. It is recommended that the hiring process follow a specific interviewing technique rather than asking brainteasers or trick questions. For instance, behavioral-based interviewing relies on a candidate’s previous behavior to predict their future behavior and can provide more structure around the process. Behavioral-based interviewing allows the interviewer to extract behavioral patterns from a candidate in order to make a qualified hiring decision and give an objective evaluation across interviewers at different stages throughout the hiring process.

A standardized interview process provides additional benefits by allowing an organization to adapt and optimize the process leading to better hiring results. Benefits of an optimized hiring process also better protect an organization from discriminatory hiring practices as application of inconsistent procedures can unintentionally lead to the false perceptions of inequitable treatment of candidates. n

Quarter in Review Q&Awith John Wepler


1 We’re seeing public brokers invest in their consulting capabilities to add value for their clients and enhance growth. How can smaller, independent brokers compete?

Clients are looking for their insurance broker to do two main things for them: provide adequate coverage for their risks, but do so at a competitive/low cost.

Small agencies typically cannot compete with public brokers dollar for dollar on investments in strategic areas, but they can address client needs by being specific and targeted in their approach. Investing in resources to provide insurance program audits, risk management consulting and other similar services can add value for your customers and may not require high levels of upfront capital commitment.

2 For the third quarter in a row, we’re seeing public brokers make technology a priority. Why is this important for independent brokers and agencies?

Smaller, independent agencies have a terrific opportunity from a technology standpoint. While technology requires investment, smaller agencies can be nimble in their approach and identify tools that can support the niche of their firm. According to one public broker, they’re seeing 90% of their time spent competing against smaller firms with fewer resources. By aligning your niche with the right technology, your agency may be able to see a competitive advantage in your marketplace.

It’s also important for firms to spend adequate time in onboarding and training on a new technology tool. According to MarshBerry’s proprietary benchmarking database Perspectives for High Performance (PHP), smaller firms are potentially spending more on technology — but not taking the time to implement properly. It is imperative to designate a “champion” or someone who takes ownership and ensure a new technology tool is leveraged by staff and management alike. If you’re going to invest in new technology, be sure you have the infrastructure in place to make it a success. Similarly, take time to re-evaluate current technology platforms to ensure that critical reinvestment dollars are not being wasted on outdated or under-utilized technology platforms.

3 There appears to be an increased demand for data analytics. What’s important to note?

We believe that investment in data analytics is unprecedented and key to accomplishing business objectives. The public brokers are using the data in their management systems to develop market intelligence and insight. This information can be incredibly valuable in making business decisions on which products to develop, which geographies to enter, and what technology platforms to leverage. They’re using the outcome to spur innovation and determine investments on a multi-year, ongoing basis. The ability to harness data can help improve both offensive and defensive strategies for an agency, including the ability to identify competitors, perform predictive risk modeling, develop new niches, and adapt to the ever-changing marketplace, to name a few.

Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.

BROKERAon

CorporationArthur J.

Gallagher & Co.

Brown & Brown, Inc.

Marsh & McLennan

Companies, Inc.

Willis Towers Watson4

Ticker AON AJG BRO MMC WLTW

Total Revenue LTM (in $ mil) 11,709 4,041 1,661 12,944 3,884

Number of Employees (FTEs)1 68,790 21,537 7,807 59,600 23,700

Number of Offices1 500 650 236 600 400

Revenue per Employee ($) 170,214 187,626 212,695 217,181 163,882

Revenue per Office ($) 23,418,000 6,216,769 7,036,055 21,573,333 9,710,000

ENTERPRISE VALUE2

Common Stock Price ($) 92.21 40.94 32.10 55.45 128.66

Number of Shares Outstanding (in 000s) 269,800 176,947 138,985 521,898 69,000

Market Capitalization (in $ mil) 24,878 7,244 4,461 28,939 8,878

Plus: Total Debt (in $ mil) 5,737 2,457 1,153 4,414 3,266

Plus: Preferred Stock & Minority Interest in Subsidiaries (in $ mil) 57 50 0 89 184

Less: Cash & Short Term Investments (in $ mil) 384 480 443 1,374 532

Equals: Enterprise Value (in $ mil) $30,288 $9,271 $5,171 $32,068 $11,796

BOOK OF BUSINESS VALUE2

Market Capitalization (in $ mil) 24,878 7,244 4,461 28,939 8,878

Less: Tangible Net Worth (in $ mil) -4,465 -1,674 -1,182 -2,323 -2,522

Equals: Book of Business Value (in $ mil) $29,343 $8,918 $5,643 $31,262 $11,400

ORGANIC GROWTH

Organic Growth3 5.0% 4.2% 2.5% 5.0% 4.8%

Total Growth3 -0.3% 6.7% 2.9% 2.8% 2.8%

The Broker Tear Sheet has been prepared by Marsh, Berry & Co., Inc. This is an overview and analysis of the five publicly traded insurance brokers, and is not intended to provide investment recommendations on any company. It is not a research report; as such term is defined by applicable laws and regulations. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities, financial instruments or to participate in any particular trading strategy. This tear sheet is distributed with the understanding that the publisher and distributor are not rendering legal, accounting, financial or other advice and assume no liability in connection with its use. This tear sheet does not rate or recommend securities of individual companies, nor does it contain sufficient information upon which to make an investment decision. These materials are based solely on information contained in publicly available documents and certain other information provided to Marsh, Berry & Co., Inc., and Marsh, Berry & Co., Inc. has not independently attempted to investigate or to verify such information. Marsh, Berry & Co., Inc. has relied, without independent investigation, upon the accuracy, completeness and reasonableness of such information and therefore has assumed no obligation to update this data for financial restatements. These materials are intended for your benefit and use and may not be reproduced, disseminated, quoted or referred to, in whole or in part, or used for any other purpose, without the prior written consent of Marsh, Berry & Co., Inc. Nothing herein shall constitute a recommendation or opinion to buy or sell any security of any publicly traded entity mentioned in this document. Numbers may not add up due to rounding, however, this does not materially affect the data integrity.

The Broker Tear Sheet is a proprietary quarterly report from MarshBerry that highlights critical ratios and statistics on the performance and market value of the five publicly traded insurance brokers. The information is compiled from a number of credible sources including: SNL Financial, Yahoo! Finance, Morningstar and Reuters reports along with company websites.

The one and five year Financial Performance Indicators are updated after each broker’s year end filing (Q4), while the remaining metrics are updated on a quarterly basis.

A p r i l 2 0 1 6

Q4 2015 Snapshot (as of 12.31.15)

The Broker TearSheet

Securities offered through MarshBerry Capital, Inc., Member FINRA Member SIPC and an affiliate of Marsh, Berry & Company, Inc., 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 440.354.3230.


1 Number of employees and number of offices are estimates based on data provided in annual reports, SNL Financial and on corporate websites by each company. 2 Numbers may not add up due to rounding.3Both Organic Growth and Total Growth represent the most recent quarter (MRQ) in comparison to the same period for the prior year for all reported segments. As such, the difference is comprised of growth by acquisition and disposition of applicable business units for the MRQ. It could include items such as contingent revenue, acquisition revenue and disposed revenue from those that would exclude it from their organic growth calculation. Organic Growth calculations vary by broker (see reverse side).4Willis Group Holdings and Towers Watson merged on January 5, 2016, creating Willis Towers Watson. This data only reflects Q4 2015 for Willis Group Holdings.

4As reported in the MD&A published by each company; and calculated and reported slightly differently by each. AON: Includes all revenue (excludes fiduciary investment income, business unit transfers, unusual items and reimbursable expenses). AJG: Includes base organic commission & fee revenue (excludes supplemental and contingent commission revenues, South Australia ramp up fees and New Zealand claims administration). BRO: Includes total commissions and fees and Colonial Claims’ revenue related to Hurricane Sandy from 1Q13, among other items (excludes profit sharing and supplemental commissions). MMC: Includes all segments of revenue, using consistent currency translation (Excluding divestitures, business unit transfers, and acquisitions). WSH: Includes total commissions & fees (excludes legacy contingent commission, investment, and other income). All broker calculations exclude the impact of foreign currency translation, divestitures/disposed operations, and the first twelve months of acquisition commission & fee revenue, except where noted.5EBITDA is not adjusted to include the add-back of non-recurring expenses written off throughout the year.

TERMINOLOGY KEY: LTM: LAST 12 MONTHS (12.31.15); CAGR: COMPOUND ANNUAL GROWTH RATE (12.31.15); EBITDA: EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION & AMORTIZATION; NM: NON-MEASURABLE; YOY: YEAR OVER YEAR

EBITDA5 LTM (in $ mil)

Marsh McLennan 2,893 Aon 2,681 AJ Gallagher 731 Willis Towers Watson 653 Brown & Brown 550

Median 731

EBITDA YOY Growth as of 12.31.15

Brown & Brown 16.6%AJ Gallagher 14.3%Marsh McLennan 10.8%Aon 2.6%Willis Towers Watson -18.3%

Median 10.8%

EBITDA Growth 5 Year CAGR

AJ Gallagher 17.2%Marsh McLennan 16.3%Aon 11.6%Brown & Brown 9.8%Willis Towers Watson -6.2%

Median 11.6%

EBITDA Margin LTM

Brown & Brown 33.1%Aon 22.9%Marsh McLennan 22.4%AJ Gallagher 18.1%Willis Towers Watson 16.8%

Median 22.4%

EBITDA Margin 5 Year Average

Brown & Brown 32.8%Aon 20.8%Marsh McLennan 19.7%AJ Gallagher 17.9%Willis Towers Watson 14.7%

Median 19.7%

PROFIT

Organic GrowthQuarter End 4Q154

Marsh McLennan 5.0%Aon 5.0%Willis Towers Watson 4.8%AJ Gallagher 4.2%Brown & Brown 2.5%

Median 4.8%

Revenue YOY Growth as of 12.31.15

AJ Gallagher 13.3%Brown & Brown 5.4%Willis Towers Watson 2.0%Marsh McLennan -0.5%Aon -3.0%

Median 2.0%

Revenue Growth 5 Year CAGR

AJ Gallagher 17.6%Brown & Brown 11.3%Aon 6.5%Marsh McLennan 4.1%Willis Towers Watson 3.1%

Median 6.5%

Total Revenue LTM (in $ mil)

Marsh McLennan 12,944 Aon 11,709 AJ Gallagher 4,041 Willis Towers Watson 3,884 Brown & Brown 1,661

Median 4,041

GROWTHOrganic Growth Year to

Date as of 12.31.154

AJ Gallagher 5.1%Marsh McLennan 4.0%Willis Towers Watson 3.3%Aon 3.0%Brown & Brown 2.6%

Median 3.3%

Tangible Net Worth (in $ mil)

Brown & Brown -1,182AJ Gallagher -1,674Marsh McLennan -2,323Willis Towers Watson -2,522Aon -4,465

Median -2,323

Working Capital/LTM Revenue

Brown & Brown 12.6%Marsh McLennan 10.3%Aon 7.6%AJ Gallagher 3.6%Willis Towers Watson -7.6%

Median 7.6%

Days of Working Capital

Brown & Brown 60.6 Marsh McLennan 45.8 Aon 32.3 AJ Gallagher 14.0 Willis Towers Watson -30.6

Median 32.3

BALANCE SHEETTangible Net Worth

as % of Revenue

Marsh McLennan -17.9%Aon -38.1%AJ Gallagher -41.4%Willis Towers Watson -64.9%Brown & Brown -71.2%

Median -41.4%

Debt to LTM EBITDA (Lower performance is usually best)

Marsh McLennan 1.5 Brown & Brown 2.1 Aon 2.3 AJ Gallagher 3.4 Willis Towers Watson 5.0

Median 2.3

Market Cap (in $ mil)

Marsh McLennan 28,939 Aon 24,878 Willis Towers Watson 8,878 AJ Gallagher 7,244 Brown & Brown 4,461

Median 8,878

Book of Biz Value as Multiple of LTM EBITDA

Willis Towers Watson 17.5 AJ Gallagher 12.2 Aon 10.9 Marsh McLennan 10.8 Brown & Brown 10.3

Median 10.9

Enterprise Value as Multiple of LTM EBITDA

Willis Towers Watson 18.1 AJ Gallagher 12.7 Aon 11.3 Marsh McLennan 11.1 Brown & Brown 9.4

Median 11.3

Price-Earnings Multiple

Willis Towers Watson 23.8 AJ Gallagher 19.9 Aon 18.9 Brown & Brown 18.9 Marsh McLennan 18.6

Median 18.9

VALUEBook of Biz Value as

Multiple of LTM Revenue

Brown & Brown 3.4 Willis Towers Watson 2.9 Aon 2.5 Marsh McLennan 2.4 AJ Gallagher 2.2

Median 2.5

Dividend Yield Quarter End 4Q15

AJ Gallagher 3.6%Willis Towers Watson 2.6%Marsh McLennan 2.2%Brown & Brown 1.5%Aon 1.2%

Median 2.2%

RETURNEarnings Yield

Quarter End 4Q15

Aon 2.3%Marsh McLennan 1.3%Brown & Brown 1.3%AJ Gallagher 0.9%Willis Towers Watson -0.3%

Median 1.3%

Price Per Share Growth LTM

Willis Towers Watson 8.4%Brown & Brown -2.5%Aon -2.8%Marsh McLennan -3.1%AJ Gallagher -13.0%

Median -2.8%

Price Per Share Growth 5 Year CAGR

Marsh McLennan 15.2%Aon 14.9%AJ Gallagher 7.1%Willis Towers Watson 7.0%Brown & Brown 6.0%

Median 7.1%

Total Return LTM

Willis Towers Watson 11.4%Marsh McLennan -1.1%Brown & Brown -1.1%Aon -1.6%AJ Gallagher -10.2%

Median -1.1%

Securities offered through MarshBerry Capital, Inc., Member FINRA, Member SIPC, and an affiliate of Marsh, Berry & Co., Inc. 28601 Chagrin Blvd., Suite 400, Woodmere, Ohio 44122 • 800.426.2774 No portion of this publication may be reproduced without express written consent from Marsh, Berry & Company, Inc. All rights reserved © 2016.

Q4 2015 Financial Performance Indicators (as of 12.31.15)


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