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Q&A: Mystic Capital Advisors
managing director Kevin Donoghue
September 6, 2006
By Adam Van Deusen
SNL Financial recently had the opportunity to speak with Kevin Donoghue, managing director and co-founder of Mystic
Capital Advisors Group LLC, an advisory
firm providing financial consulting services
to the insurance and financial services
Donoghue has worked for fifteen years
in various merger, acquisition and financial consulting roles. He co-founded Mystic
in 2001 with two fellow co-workers from
BMG Capital Advisors Group, a subsidiary
of Hartford Financial Services Group Inc.
Since then, Mystic has grown to be one of
the top in the business. In the first half
of 2006, Mystic was ranked first among
broker and agency deal advisors, based on
number of deals. The firm is credited with
advising on seven deals worth $108.0 million during the first six months of the year.
The firm’s business is growing rapidly, and
Mystic just recently announced the hiring
of Allen Go as a senior associate focusing
on North America-based insurance transactions, effectively expanding the firm to
Donoghue spoke with SNL about the
future outlook for the firm and the insurance broker M&A sector.
What follows is an edited transcript.
SNL: You topped SNL’s list for insurance broker and agency deal advising during the first half of 2006. To
what do you attribute this performance?
Donoghue: We have for the last five
years spent a lot of time getting to know
face-to-face agents, brokers, insurance
companies, as well as MGAs [managing
general agents] and wholesalers. A lot
of that is just a matter of time catching
up to us in our favor. We started Mystic
in October of 2001. We’re coming up on
our fifth year anniversary, and I think a
lot of the hard efforts we’ve put in over
the last five years are starting to pay off.
Our pipeline is packed with opportunities
and deals that we’re working on. And certainly, that’s another reason why adding
Allen to our staff is exciting for us.
Do you attribute your success more
to additional M&A activity in the
pipeline in general, or is it something that you’re doing differently
than your competitors?
There’s probably a little bit of both.
Certainly, I think some of our clients have
come to us because some of our competitors were not effective for them. To
some extent we’re drawing in clients, as
we do things a little bit differently. But I
think the overall M&A environment has
definitely picked up in ‘06 versus ‘05. So
it’s a combination of both.
Speaking of competitors, Allen Go
came from WFG Capital Advisors.
What do you think brought him to
I think just more opportunities and
certainly more deal flow. And I think New
York is a little bit more of a vibrant marketplace than Harrisburg [Pa.].
What does Go bring to the table for
He brings three years of solid industry
experience to the table. He’s a smart individual and should add some breadth to
what we’re offering our clients.
Do you think Mystic might look to
branch out beyond the insurance
We are currently working on a number
of microcap insurance deals, so we’re
outside the sector already. There will
soon be announcements of a few microcap companies we’ve been involved with.
We’re really focused on the microcap
insurance space. To date, most of that
has been in the wholesale MGA and retail
brokerage sector, but insurance companies are quickly going to be adding into
the tables for us.
Who do you think is driving insurance broker M&A demand more, the
larger banks or brokerage firms?
Banks have been relatively quiet in
comparison to past years, so I think this
year has been somewhat of a downtick
for banks. I think much of the demand
has been driven by the public brokers
as well as the regionals. In the wholesale MGA space, the demand has been
twofold. Existing market participants,
which recently included retail brokers,
also include insurance companies that
are starting to really look at MGAs again.
With specialty MGAs, basically they’re
just buying a product line they can underwrite. So it’s a true acquisition for
them, in which they roll up the book of
business from one market to another.
Do you expect more consolidation in
the brokerage industry in the coming months?
I would expect so, given the pipeline
we’re looking at. Certainly demand is still
up and the publics still need to grow and
acquisition is their prime growth driver,
so I would expect that to hold.
Do you think the regulatory cloud
over broker M&A following Eliot
Spitzer’s broker contingent commission investigation is lifting?
I think it’s lifting, if not lifted completely. I think this cloud of uncertainty
on contingencies is somewhat disappearing. There are certainly some people worrying about them still, but overall, we
think that cloud has passed. Some of the
settlements out there certainly indicate
that it may have passed completely. i