The Long and Short
Brown & Brown funds new acquisition
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
Brown & Brown (BRO: Baa3/BBB-/BBB) launched a large debt funding package for a newly announced acquisition this week. The new deal roughly doubled the issuer’s footprint in the corporate bond market, as well as the investment grade index when the bonds migrate next month. As a result, there is renewed liquidity in the BRO ticker, for both the new issues as well as the legacy bonds already outstanding. This presents an opportunity to investors seeking to add exposure to the widest trading name in the insurance broker subgroup, a segment that offers good relative value to the broader P&C sector given the operating stability of its constituents. While the acquisition itself puts added pressure on the credit profile of BRO, investors appear well compensated for those risks at current valuation, and management has laid out a path to deleveraging to the rating agencies.
On Tuesday, BRO launched a 6-part debt launch funding package for their $9.825 billion acquisition of RSC/Accession announced just the day before. The issuer priced $4.2 billion for about half of the cash portion (86%) of the deal financing (Exhibit 1) with the rest coming from an equity raise ($4 billion) and cash on hand. The other 14% of the deal financing will come from stock issued to RSC’s ownership. All tranches of the new debt launch will contain 101% special mandatory redemption language tied to the transaction except the 10-year bond. The bonds have performed well in the days following their debut. Existing debt unsurprisingly experienced a little bit of pressure with the announcement and launch of the new debt tranches, with the exception of the BRO 2052s, which compressed closer in line with the new 2055 debt maturity.
Exhibit 1. BRO new issue securities vs existing debt outstanding
Source: Santander US Capital Markets LLC, Bloomberg/TRACE – YAS pricing indications
Management has committed to maintaining investment grade ratings. Both Moody’s and S&P affirmed their ratings on the merger announcement and BRO added a new ‘BBB’ rating from Fitch this week as well (initiated on June 10). The acquisition will boost leverage to about 3.5x from the current levels in the 2x to 2.5x range, and the company will need to deleverage over the next several years to maintain investment grade status. The agencies are targeting leverage to return to the 2x to 2.5x range by the end of 2026. Most of the investment grade insurance brokers have been running in the 2x to 2.5x range, with the exception of AJG which also moved above the 3.0x threshold in recent years. Accession will add about $1.7 billion in pro forma annual revenue to BRO’s existing level of about $4.3 billion to $4.5 billion. Though BRO is the smallest investment grade operator in the insurance broker segment, the company maintains among the highest profit margins in the industry. Accession has reported EBITDA margins of around 35% but is also expected to generate run-rate synergies of $150 million by the end of 2028.
Insurance brokerage credits offer relative stability to traditional property and casualty names, as underwriting risk and rate volatility affect the broader industry more directly. Traditional P&C insurance underwriters had struggled in recent years amidst periods of heightened global catastrophe costs, while those market conditions eventually served to benefit the profitability of the global insurance brokers. Furthermore, ongoing interest rate volatility creates investment portfolio risk that more directly affects insurance underwriters and has a more limited impact on the brokerage group. BRO offers good risk compensation relative to the rest of the peer group, with the widest trading bonds in the intermediate-to-long end of the credit curve (Exhibit 2).
Exhibit 2. BRO vs the IG Insurance Broker peer group (New Issue BRO highlighted)
Source: Santander US Capital Markets LLC, Bloomberg/TRACE – G-spread indications only
Ahead of the acquisition, BRO is the smallest of the investment grade insurance brokers with annual revenue that was a little less half that of the next largest competitors AJG and WTW. The company had mostly been expanding through a combination of strategic bolt-on acquisitions and impressive organic revenue growth, but the Accession deal will help narrow the gap with competitors. Revenue had more than doubled since 2015. BRO is highly focused on the domestic market with over 90% of revenue generated but had been targeting acquisitions to help expand its footprint outside of the US. However, the Accession deal will add only mostly domestic revenue as well. From a strategic perspective, the new assets will help build BRO’s franchises in the P&C, employee benefits, specialty and programs within the broader brokerage space as well.
As noted earlier, BRO is recognizable among its peer group for among the higher profit margins in the industry. Recent EBITDA margins have been running close to 37% (full-year 2024). That compares with significantly lower profitability from most of the peer group of approximately: WTW (31%), AJG (32%), MMC (29%), and AON (32%).
Before the deal announcement, BRO maintained a manageable liquidity profile with nearly $700 million in cash on the balance sheet—a portion of which will be used for the acquisition—plus an additional $400 million available on the company’s undrawn credit facilities. The company paid down a $500 million public debt maturity late last year, which it funded with a 10-year debt issuance in June of last year. The company had no other public debt maturities until 2029 but with private loan maturities staggered over the next three years (plus the new 2026 maturity launched this week).
BRO operates through three main segments: retail (55% of total revenue), programs (30%) and wholesale brokerage (15%). The programs unit offers the highest margins of about 48% throughout 2024. Only about 12% of revenues are generated outside the US, primarily in the UK, and it seems that international expansion will at least temporarily be curbed as it seeks to properly absorb the Accession deal and maintain its investment grade profile.
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2025 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
Important disclaimers for clients in the EU and UK
This publication has been prepared by Trading Desk Strategists within the Sales and Trading functions of Santander US Capital Markets LLC (“SanCap”), the US registered broker-dealer of Santander Corporate & Investment Banking. This communication is distributed in the EEA by Banco Santander S.A., a credit institution registered in Spain and authorised and regulated by the Bank of Spain and the CNMV. Any EEA recipient of this communication that would like to affect any transaction in any security or issuer discussed herein should do so with Banco Santander S.A. or any of its affiliates (together “Santander”). This communication has been distributed in the UK by Banco Santander, S.A.’s London branch, authorised by the Bank of Spain and subject to regulatory oversight on certain matters by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The publication is intended for exclusive use for Professional Clients and Eligible Counterparties as defined by MiFID II and is not intended for use by retail customers or for any persons or entities in any jurisdictions or country where such distribution or use would be contrary to local law or regulation.
This material is not a product of Santander´s Research Team and does not constitute independent investment research. This is a marketing communication and may contain ¨investment recommendations¨ as defined by the Market Abuse Regulation 596/2014 ("MAR"). This publication has not been prepared in accordance with legal requirements designed to promote the independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The author, date and time of the production of this publication are as indicated herein.
This publication does not constitute investment advice and may not be relied upon to form an investment decision, nor should it be construed as any offer to sell or issue or invitation to purchase, acquire or subscribe for any instruments referred herein. The publication has been prepared in good faith and based on information Santander considers reliable as of the date of publication, but Santander does not guarantee or represent, express or implied, that such information is accurate or complete. All estimates, forecasts and opinions are current as at the date of this publication and are subject to change without notice. Unless otherwise indicated, Santander does not intend to update this publication. The views and commentary in this publication may not be objective or independent of the interests of the Trading and Sales functions of Santander, who may be active participants in the markets, investments or strategies referred to herein and/or may receive compensation from investment banking and non-investment banking services from entities mentioned herein. Santander may trade as principal, make a market or hold positions in instruments (or related derivatives) and/or hold financial interest in entities discussed herein. Santander may provide market commentary or trading strategies to other clients or engage in transactions which may differ from views expressed herein. Santander may have acted upon the contents of this publication prior to you having received it.
This publication is intended for the exclusive use of the recipient and must not be reproduced, redistributed or transmitted, in whole or in part, without Santander’s consent. The recipient agrees to keep confidential at all times information contained herein.
