Analysts: Big Broker Deal Could Lead To Smaller Deals

Although USI has had trouble meeting securities' analysts earnings expectations, it is attractive to investors because it has not been implicated in the brokerage contingency fee scandal and has not agreed to give up contingent commission revenue, according to Donald Light, a senior analyst at Celent L.L.C., Boston.

"Private equity firms are awash in cash right now, and because of the upheavals in the insurance brokerage business, it has become very attractive to them," Light says.

Once GS Capital completes the USI deal, USI may be able to use private-equity funding to buy smaller agencies without having to worry about the immediate effects of the deals on its income statement, Light says.

David Lewis, an analyst with SunTrust Robinson Humphrey in Atlanta, also predicts that USI will use private-equity funding to acquire more agencies.

Throughout the insurance brokerage sector as a whole, massive deals probably will be rare, but consolidation is likely to continue in the $1 million to $10 million revenue range, Lewis predicts.