Financial Horizons Group acquired Force Financière Excel on Feb. 29 to become what it says is Canada’s largest MGA. The company does not, however, plan to stop there. Financial Horizons’ CEO John Hamilton says he has about $50 million to finance further acquisitions.
In an interview with The Insurance and Investment Journal, Mr. Hamilton revealed that he is in serious discussions with other companies. “Yes our plan is to continue to grow and there are others that we’re in deep discussions with and I would certainly hope that you’ll see more of this well before the end of the year.” He did not have much to say about the financial criteria of his acquisition targets, but Mr. Hamilton did say that he has $50 million to make these kinds of purchases.
Last year, Financial Horizons Group itself was acquired by Granite Global Solutions. Granite is owned by Genstar Capital, LLC, an American venture capital firm.
With the Excel acquisition, Financial Horizons now has more than $220 million of in-force life premium and $3.5 billion in segregated fund assets. At the same time, it gives the company access to 1800 new advisors, bringing its Canadian distribution network to about 4000.
Financial Horizons has acquired 100% of Excel shares held by its shareholders James McMahon, Bertrand Fortier, Christian Robitaille and François Flamand. In exchange they will receive cash and shares in Granite Global Solutions.
Excel’s mutual fund subsidiary, Excel Investments, remains out of the transaction as Financial Horizons Group is not active in the mutual fund business and does not wish to be in the near future. Excel Investments, which has $1 billion in mutual fund assets under management, will continue to operate separately. Mr. Hamilton says that Financial Horizons has no plans to get into the mutual fund business at present, but he adds that if someday it does enter this market, it would do so via the acquisition of an established firm.
The acquisition of Force Financière Excel brings Mr. Hamilton closer to his ultimate objective: reaching the 10,000 advisor level. Financial Horizons wishes to strengthen its presence in Western Canada, but remains open to any other region. “The number one criteria is to find a well run, profitable well managed MGA that shares our vision and I don’t really care where they are...location is not the top priority.,” he said.
Martin Luc Derome previously owned an MGA in Quebec which was acquired by Financial Horizons in 2008 and he is now a senior partner with the firm. He initiated discussions with Excel in February 2011. He states that Excel was the only managing general agent approached in the province at the time.” We wanted the best,” he said in an interview with The Insurance and Investment Journal.
Asked about shareholders’ reasons for selling, Mr. McMahon said that above all it stemmed from a desire to grow. “We wanted to continue to grow and achieve a breakthrough in the market outside Quebec. The Financial Horizons Group offer gave us the opportunity.” For the last two years, Mr. McMahon said he had been looking for a financial partner capable of providing capital to finance Excel's growth objectives.
Founded in Sherbrooke in 1991 by Daniel Labonté and James McMahon, Excel itself has made twelve acquisitions over the years and became one of Quebec’s largest MGAs.
Mr. Derome believes that after a certain point, a managing general agent cannot acquire firms by borrowing. Its debt ratio becomes too high and its margins too thin. It can always turn to venture capital, but at some point, the appeal of a consolidator with deep pockets becomes irresistible. James McMahon agreed with this view.
Could Excel have gone on alone anyway? “Our size would have allowed us to continue to grow on our own. But with everything that is coming from the regulators, increasingly stringent compliance requirements, insurers who are downloading services to advisors and delegating them to us, we realized that it would take more sources revenue to support advisors,” says Mr. McMahon.
Mr. McMahon has been named president of the Quebec division of Financial Horizons Group. In this role, he will continue to seek potential acquisitions and other business opportunities in the Quebec market, under the Force Financière Excel brand name for the immediate future.
For his part, Mr. Hamilton does not envisage major changes in the organization. The head office will remain in Sherbrooke. Financial Horizons will offer the advisors the same terms. “We are not changing commissions or volume requirements for advisors,” he said.
Mr. Hamilton expects to achieve economies of scale. As a result, training costs will decline, as well as costs in administration and support to advisors. Compliance costs are also likely to go down. In the back office, Excel will begin to use VirtGate during the year and abandon its own Mirador system. He also expects on the production side to earn higher revenues from the life companies in terms of volume bonuses.