- The Washington Times - Monday, August 9, 2004

Richmond insurance giant Hilb Rogal & Hobbs Co., continuing its aggressive acquisition plan, said yesterday it would purchase Chicago insurance broker T.J. Adams Group LLC.

The acquisition, the third-largest for Hilb Rogal, is part of the company’s goal to buy several companies by the end of the year. Executives estimate the acquisitions will generate $30 million to $60 million a year in revenue.

Hilb Rogal, an insurance intermediary that manages risks in areas such as property and casualty, has bought three other companies this year and still is integrating Hobbs Group LLC, the company’s largest acquisition in July 2002, into its operations.

The company plans to buy T.J. Adams for an undisclosed amount. The deal is expected to close by September.

Several analysts welcomed the news and recent changes in the company’s sales model after Hilb Rogal posted a small bump in its second-quarter results.

“They announced a pretty good acquisition,” said Jason Busell, an analyst with New York investment bank Keefe, Bruyette & Woods Inc. Mr. Busell said he rated the company as “market performance,” or hold, because he is cautious about softer premium rates that are squeezing the insurance brokerage industry.

The insurance industry’s pricing tends to be cyclical, with a hard market driving up premiums while a soft market brings them down. After about three years of rising premiums, analysts say, they are seeing a slight decline.

“But if [Hilb Rogal] continues to focus on improving organic growth and acquiring these smaller firms that are strategic fits, they should do OK,” said Mr. Busell, who does not own any Hilb Rogal stock. Keefe Bruyette has no business with Hilb Rogal.

Profits for the quarter ended June 30 climbed 7 percent, below some analysts’ expectations, to $20.5 million (56 cents per share) from $19.1 million (52 cents) last year. Sales rose 6 percent to $147.8 million from $139.5 million a year earlier.

Chairman and Chief Executive Officer Martin L. Vaughan said recent sales restructuring and the weakening of property and casualty insurance pricing contributed to the “disappointing financial results.”

Nikolai Fisken, an analyst with Little Rock, Ark., investment bank Stephens Inc., lowered his 2004 projections after the earnings release to $612.4 million in sales for the year from $621.8 million.

“Even though Hilb Rogal & Hobbs presents an attractive investment relative to its peers on a valuation basis, we think the lack of any real near-term catalysts will cause the stock to continue to trade near current levels,” Mr. Fisken said in his most recent report.

Mr. Fisken, who rated the company as “equal weight,” does not own any Hilb Rogal shares, but the company is a client of Stephens.

Shares of Hilb Rogal on the New York Stock Exchange closed yesterday at $32.89, down 2 percent (81 cents) from a week earlier at $33.70. The stock, which had a 52-week high of $38.75 in April, has traded in the $30 range for the past year.

Despite industry concerns and uncertainties about when Hilb Rogal will have its revamped sales infrastructure in place, David West, a research director with Davenport & Co. LLC, said the company is moving in the right direction.

“They just implemented the national sales effort this year, and these changes don’t happen overnight,” said Mr. West, with the Richmond stock-brokerage firm. Mr. West rated the company as a “buy,” adding that recent acquisitions have been more disciplined than in the past.

Mr. West does not own company stock, but Davenport has an investment banking and securities relationship with Hilb Rogal.

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