May 8, 2023 by Jason Contant
Large Ontario brokerage McDougall Insurance Brokers Limited, a subsidiary of Definity Financial Corporation, has merged with another large provincial brokerage — McFarlan Rowlands Insurance Brokers Inc.
The combination of McDougall and McFarlan Rowlands represents more than $700 million in annual premiums, 670 employees, 56 office locations, “robust operating margins, and a track record of sustainable growth,” Definity said in a press release Monday.
McDougall purchased 100% of the shares of McFarlan Rowlands and affiliated entities for aggregate cash and share consideration of $232 million, subject to closing and post-closing adjustments.
Established in 1896, McFarlan Rowlands is an Ontario-based brokerage with more than 200 employees in 18 office locations across southwestern Ontario. With more than $200 million in annual premiums, the brokerage offers P&C insurance, including home, auto, commercial and farm, as well as expertise in claims adjusting, and life and group benefits brokering.
“This merger allows us to continue on our path to become a billion-dollar insurance brokerage…” McDougall president Christian Hutchison told Canadian Underwriter Monday. “We firmly believe that acquiring and/or merging with highly profitable, well-run insurance brokerages continue to be one of the best investments you can make.”
The transaction was completed Monday. Definity president and CEO Rowan Saunders said in the release the deal “provides immediate scale and meaningfully advances Definity’s broker platform strategy. We now have appropriate scale from which to extend the platform geographically…”
Hutchison added the transaction allows McDougall scale in Ontario, as it now covers locations in eastern, western, central and northern Ontario. “It shows our business partners our seriousness in growing organically and by M&A — and our commitment to increase our volumes with each and every one of our insurance partners.”
When asked about the advantages of the merger, Hutchison said the two brokerages have shared best practices for years — “sharing business ideas, discussing our shared successes and challenges, so we know how we fit together already.
“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.”
Saunders has previously discussed Definity’s M&A plans to deploy excess capital since its demutualization. “Definity continues to hold significant financial capacity for future opportunities,” the insurer said in the release.
For the McDougall-McFarlan Rowlands deal, the cash portion of the purchase price was funded through a combination of excess capital and debt. The remaining portion was satisfied by the issuance of shares in McDougall to McFarlan Rowlands shareholders.
Definity’s ownership interest in McDougall remains at approximately 75% after accounting for all related transactions. In October 2022, Definity increased its ownership interest in McDougall from about 25% to 75%. Definity said at the time when the deal was completed, its total investment in McDougall would be $251 million.
The incremental annual distribution income generated from McFarlan Rowlands will increase Definity’s aggregate expected operating income from broker investments from approximately $40 million to about $60 million before finance costs, taxes and minority interests. The transaction is expected to be immediately accretive to Definity’s operating ROE and operating earnings per share.
Colin Simpson, CEO of the Insurance Brokers Association of Ontario, noted there continues to be significant consolidation across the broker distribution channel in 2023. He said both McFarlan Rowlands and McDougall are “excellent businesses that have a deep history within the Ontario broker network.
“With any acquisition, there is a level of excitement of new beginnings and possibly some angst around change,” he said. “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.”
Feature image by iStock.com/courtneyk