We're going to get started. My name is Brett Gibson, Credit Analyst here at JP Morgan. We're pleased to welcome R. Andrew Watts, the Chief Financial Officer of Brown & Brown. Mr. Watts has been at Brown & Brown since March of 2014, so about a year. Prior to that, he was with Thomson Reuters for a number of years in various capacities. With that, we are pleased to welcome him, and we'll turn the time to him.
Okay, great. Thank you very much. Hopefully everybody can hear me okay. I'm going to move around through the slides a little bit because I think You guys can hear me okay? Perfect. In order to kind of focus in on a number of topics that I hope we'll find are germane to everybody in this group. Probably take 10 or 15 minutes of prepared comments, and then we can open up for Q&A that's out there. Let me start with an overview and really what we believe is the financial highlights and really for investment thesis around why Brown & Brown versus a lot of other companies that are out there in the marketplace. Well, first and foremost is we've got a really balanced and diversified business that we've been able to grow successfully over a number of decades, and I'm going to talk more about that one.
It's really given us a very distributed platform across all of the U.S. We're actually able to focus on the middle market, which is one of the largest markets that are out there. We've been able to grow our revenues profitably over the last 10 years, which is really good for us as an organization. We've done that both organically as well as through acquisitions. I'm going to talk about what those are and how that's helped us fuel growth for the business. Also on top of it is we think we've built a long-term, lasting operating platform in this marketplace that has the ability to deliver industry-leading margins that are generally 100% better than anybody in this space. We have the best cash conversion ratio, almost 200% better than anybody else in the industry, and we've done it for a few decades.
We think we've got a proven track record to be able to do that. We have an excellent management team. Today with me here in the room is Chris Walker, our president of our National Programs business. Powell Brown was not able to make it today. He had some other meetings he had to join out there. We have an excellent management team, and we have breadth and depth all the way through our organization to continue driving the business forward. On top of this is we have a very conservative financial policy. We did our debut public bond last year as we did an acquisition of The Wright Insurance Group. Otherwise, historically, we've always maintained a very low leverage. It's an area that we like to be as an organization.
We generate a lot of cash every year, but we're always going to tend to be more conservative in nature. We think that presents itself a unique opportunity from an investment standpoint for a lot of potential investors. The company itself, last year we finished at just shy of $1.6 billion as an organization. We're arranged or aligned within four divisions. Our largest division is retail, and that's really where we come out and see you as the local business owner, understanding what the risks are inside of your organization. How do we help bring the right solutions to you if it's on property and casualty, directors, officers, professional liability, whatever the case may be underneath our employee benefits. The next largest is National Programs. That makes up about 25% of our organization.
This is where we create unique programs for homogeneous groups that distribute across the entire United States. That could be for dentists, lawyers, earthquake, aftermarket automobiles that are out there, running big municipal plans, either for municipalities or for school districts. Our next is our wholesale division. Makes up about 15% of our company. That's really where we're placing excess and surplus coverage for a unique risk that's out there. Something that the traditional markets wouldn't do. If you're doing high erection steel, you probably need some unique coverage. If you're doing underwater drilling in some way, that would be E&S coverage. D&O coverage on a high-tech company. That would be the type of things that we would do inside of that business. Any of the coastal properties would fall inside of there.
Next is our services division, and this is really our division that has a lot of our TPAs as well as our claims processors inside of it. We have a Medicare set-aside business as well as a Social Security disability advocacy business, and we really have those organizations as part of Brown & Brown because they're synergistic with a lot of our carriers. We're trying to think about how do we continue to bring value to our carrier partners as well as to our end customers. Ownership structure of the company, as you can see, is about 29% owned internally by all of Brown & Brown teammates. We believe we've got a very large internal ownership of about 70% of our teammates.
That really drives a culture whereby we think about the money that we spend every day as our money, and it helps really fuel the organization, and it's part of what drives the profitability inside of the company. Okay. Let me jump forward to a couple slides. Let me talk about capital deployment strategy. We think about how we distribute our capital every year across three different axes. How do we invest our money internally? Traditionally, that's been in the form of new teammates. The second is around how do we acquire companies that are out there in the industry that'll fit well with us culturally as well as financially. Third is how do we distribute money back to our shareholders. Historically, we've done that across all three of the axes, but with about 80% to 85% of that money going towards acquisitions.
Last year, we were approved by our board for a $200 million share buyback. We thought that was appropriate for us as an organization, as we looked at where we were trading, the cash that we were generating, the value of our organization. We completed the first $50 million of that last year. We commenced the next $100 million about a week and a half ago. It's our way of making sure that over time, what we're trying to do is optimize the return back to our shareholders. I mentioned earlier about the internal ownership culture, and this is really important because if we have almost 30% of the company owned by insiders and 70% of our teammates, it is like our money. We believe that we're very well-aligned with our shareholders, which is we want to make sure we're driving long-term shareholder value.
We continue to balance this across these three different axes, we think hopefully we'll be able to optimize that over time. Last year, we were able to increase the returns back to our shareholders by over 100%, historically on dividends, and then with the buyback last year of $75 million, we returned almost $135 million back to our shareholders, which we're very proud of. You can see our return on invested capital. This is on a NOPAT basis with GAAP tax runs about 10% over time, something that we're very focused on to make sure that we're delivering good returns back to our shareholders. Let me move forward here. If I hit the right button. Let me jump over to the organization. I mentioned earlier that in the last 10 years, we've been able to grow the business substantially.
During this time, we basically doubled the organization from about $800 million to just shy of $1.6 billion. We diversified the business significantly. Back in 2005, 62% of the company was retail. Today, it makes up 51%. That organization has still grown, but we made more and more investments to large investments within National Programs. One was the Arrowhead group that we purchased back in January of 2012, and then in May of 2014, we purchased The Wright Insurance Group, a large extension into that group. We're very pleased with both of those businesses. We think we've got great discipline and diversification across all of our businesses and something we're very proud of. We've got a three-year CAGR of just shy of 16%, so we've got great growth in the last three years.
Acquisitions, I mentioned earlier, a really key component of our growth strategy, not our only component of growth strategy. In the last three years, we've averaged $150 million of annualized revenues. In each of those years, we've done one larger acquisition for our company. I mentioned Arrowhead in 2012. In 2013, we purchased Beecher Carlson, and then last year was Wright. What we try to also do is make sure, as we may find one of those large organizations, that we're also putting a number of small and medium. We want to make sure that we're investing across all four of our divisions that are out there, we're constantly looking for opportunities.
This is an area that we've got a lot of questions on during the last few months, asking us, "Have you pulled out of the M&A space?" because we're not doing deals maybe at the pace that others are that are out there. We're a very disciplined organization, and with that means we need to make sure that we find organizations that fit culturally with Brown & Brown and that, two, they have a good financial profile. If they don't meet number 1, we don't even go to number 2 through all of it, because we want to make sure as we bring them onto the team that they're in, and they're in for the long haul through all of it. We're very focused that if we're going to do a deal, it's got to be the right deal for our organization as well.
It's got to be the right deal for all of our shareholders in all of it. We're very active in this space right now. We've got a tremendous activity going on. It does come a little bit lumpy at times. It's one of the things I've learned over this last year since joining the team, is it doesn't come where every couple of weeks we do a deal. In 2014, we did one in the first quarter, five in the second quarter, zero in the third quarter, and three of them in the fourth quarter. It just kind of flows that way. I know it's probably easier for everybody if we just did one every couple of weeks, it just doesn't quite work out that way. We're very active in this space.
We think there's a lot of opportunity out there for us to continue to grow the business. Let me move over to the next couple of slides. We think this is what really starts to demonstrate what we do as an organization, how we deliver the financial performance. If you look at our revenue growth over the last three years, over the last 10 years, we've had a CAGR of 16%, significantly outpacing everybody in the industry, except for Gallagher, that has grown faster than ourselves last year with a tremendous amount of acquisitions in 2014. We think we continue to lead the path on a lot of the revenues, and that's really good to make sure we're growing the top line. The question is, how much flows to the bottom line?
This is something we're very proud of as an organization, is what percentage of the revenues that we generate every day end up as cash into our bank account, right? You don't value a company off of revenues unless you're in high tech, right? For us, it's all about cash and how much do we generate. We average about $0.22 to $0.24 of every dollar we generate goes into free cash flow. That is almost 200% better than anybody else in this industry. We've been able to do it last year. We did it three years. We've done it 10 years. We've done it for 20 years. We have a very resilient model as we've been through a lot of growth. How do we get there? It's our EBITDA margins. We run somewhere in that range of 33%-35%.
As an organization, that's generally about 100% better than anybody else in the industry. Last year, we extended our lead a little bit further than the industry average, which we're very proud of. That was off of holding our Americans constant, which really said the industry went backwards by a little bit in 2014. One thing that we also take with a lot of pride is, what's the quality of the numbers that we report? There's a lot of noise in the industry on all types of adjustments. If you look at the quality of what we report as an organization, is except for our loss that we took on the sale of Axiom Re in the fourth quarter, if you pull that out, our average adjustment over the 10-year horizon is 1% of EPS. We have very few adjustments.
When we report numbers, whatever they are, you know they're good numbers coming through, you can get a lot of confidence in what we deliver out, as well as a lot of consistency underneath of there. Let me jump forward to the end. Sorry, wrong button. There we go. I just want to take a quick second to talk about our leverage that we have as an organization. In the second quarter of last year, we did our new credit facility, which we're very proud of. We utilized that for the purchase of The Wright Insurance Group.
In the third quarter, we issued our debut bonds for $500 million, with really the objective of making sure, as an organization, we have a very balanced maturity ladder for our debt, therefore, we wouldn't run into a situation where we had a high level of risk on credit refinancing. We're very proud of that. We're continuing to manage our debt-to-EBITDA ratio. We jumped up a little bit last year with the debt that we issued, but we would like to operate over a long-term basis as an organization on a 1.5, 2.5 debt-to-EBITDA on a net basis or 2 to 3 on a gross basis. We think we've got significant amount of headroom over what would be from investment grade, we think we've got a lot of room inside of it.
From an available capacity, as we finished the end of last year, we had just shy of a billion dollars through our revolver, as well as some of the other private placements, in addition to the cash that's out there. We think we have adequate capital for anything that we may want to do at any point as an organization to make sure that we continue to grow. Let me close in. I think everyone's seen the dividend through all of it. Last few comments. We feel really good about where we are as an organization, how we finished in 2014. We grew the business 3.5% organically, which we're very pleased with, considering the backdrop of the economic environment that we're operating inside of, as well as rates. We're very pleased with all of it. We do see a market that is continuing to improve.
If you ask us, how is it today versus 12 months ago, we'd say it's definitely better. Is it back to where it was in 2006 and 2007? Definitely not, but we're starting to see hiring. There's a little bit of improvement. We're seeing construction throughout the United States, but it continues to be in some pockets, which is good. On the other side of that ledger, though, rates continue to be under pressure significantly around coastal properties, and we've been talking about that over the last few quarters. Generally, those rates are under pressure anywhere from 15% to 25%. We're seeing rates in the admitted markets continuing to moderate downward, but we're still getting some rate expansion inside of there.
I mentioned the liquidity, and that really makes sure that we've got the ability when and if we have good acquisition candidates come along, we can acquire those whenever the case may be. You saw the strong cash flow for the organization, something that we're going to continue to hopefully pride ourselves on as we keep going forward. We think that we've proven that we can do this over the last 10 years, over the last 20 years, and we can do it with both organic growth as well as with acquisitions. We've got a great management team. Very proud of our 21 years of dividend increases. Last year, we increased them by another 10%, and we think Brown & Brown is very well positioned for 2015 and beyond. With that, I'll open it up to questions.
You talked about the frequency of acquisitions, obviously lumpy. Can you talk about average size? What are thresholds that you're looking for in terms of normal? What would be stretching, and what would be something that you wouldn't even think about in terms of size? Do you not think about it in that way?
Yeah. The question was, how do we think about acquisitions around size? Would say, probably first and foremost, is size is not what matters to us when we're looking at acquisitions. First thing we're trying to do is we're trying to make sure we invest in all four of our divisions, because we're very bullish about all of them. Then it really comes down to, what's that cultural fit for that organization? We spend a tremendous amount of time with the leader of that company or the leaders of that company, however deep that we need to go, to make sure that we understand how do they think about their customers, how do they think about their teammates, how do they think about their carriers, and do those three triangulate very closely to how Brown & Brown thinks about those as an organization?
If we get comfortable with that, we'll talk about the financial transaction in quite a bit of detail to get there. Valuations are up from where they were a number of years ago. We use a lot of internal metrics to make sure that we're comfortable that the paybacks that we're expecting from an acquisition will deliver the shareholder value that we're all looking for. There's definitely a walk-away price that we have, and we're more than comfortable in walking away from a deal if we just think that price is too high that's out there. There's a lot of them that are bid really high today. The cheap capital that exists in this market today is driving, in certain places, some irrational pricing on certain deals. That's okay. We're comfortable with passing on any of those.
We don't think that there's anything that's out there that's critical to our platform that we absolutely have to have. Therefore, we don't want to overpay because ultimately, we got to get returns for all of you guys, and we got to get returns for ourselves.
What has the average size been? Maybe if you exclude Wright, in terms of what-
Yeah, the average size, let's say we take out Arrowhead, Beecher, and Wright, we would probably average somewhere around $20 million to $25 million in revenues, in that ballpark, over time.
Okay. Can you marry that with how you think about financing these transactions within the context of those leverage goals that you talked about? Do those enter into the equation somewhere during step two? How do you think about that? Help us understand the contention between continued M&A activity and then keeping the conservative profile and leverage, obviously.
Yeah, good. The first question was, how do we think about deal structuring? I'm going to see if I can talk about a traditional way in which we would do a transaction, is we normally would come up with a valuation for an organization. We'll determine what that multiple is off of their profitability, and we'll pay them a percentage of that up front, let's say 90%. We then look at what their performance is over that three-year horizon post-acquisition, take that same multiple that we paid on the front end, multiply that out so if they continue to grow their business, they get the upside to it. Normally there's a lid on top of it as to how high you can go. All of it's driven off of the returns inside of there.
We make sure that we're not paying excess profitability or underprofitability on the back end. We want the new team that's joined Brown & Brown, we want them to grow that business. We actually want them to max out, because if they do, it's really good for them financially, and it's really great for us financially through all of it. We get to the end of the three years, we look at the profitability, run it past the multiple, say, "This is what your business is worth today. We pay you X. We'll give you the delta underneath." That's a pretty standard model. The percentages up front have probably moved a little bit over time from what they used to be, probably more in the 75% if you go back years ago. Say you go back 10 years ago, it's probably 75%, 80%.
That number's probably 85 or 90 now, that's just driven off of competition in the marketplace. We think an earn-out is really important, because if you believe in your business, you believe in your teammates, you believe in all of your customers, and you believe in joining the Brown & Brown team, you should be willing to put some chips on the table. If you're not, we probably wouldn't do the deal. Okay. That was question number one. I hope that answered for you, Adam. The second question is: how do we think about this balancing of investing in the business and the leverage for the organization? As all of you guys know, the brokers, we generate a lot of cash, right? We're capital light in nature. If you want to, you can put a lot of leverage on these businesses.
We historically have run at a very low level. We've probably been closer to one on a net basis. We think being conservative in nature actually gives us a lot of optionality, right? If we started ever as an organization, say, if we ever did, you can get yourself to where you're really levered up. If the market moves on you significantly or rates move on you in some way, it puts you in a precarious situation. You may have to do things to your business that you don't want to have to do. We, as an organization, would never want to be in that place. If we go back and we look at what happened on the back end of 2006 when all the air came out of the balloon, we didn't have a lot of leverage on this organization. We had a lot of flexibility.
We continued to invest in our organization all the time. We were constantly hiring people, and we were right around through, because we're trying to make sure that we're doing this for the long term. If you don't, you normally make some rash decisions on the back end. We always want to make sure that we've got flexibility inside of there. Well, one of the ways to do it is we also want to make sure that we don't overpay for deals. If you start paying really high multiples, at some point, you've got to get a return on those. We're really structured about what we'll do underneath of it. If we draw on our revolver, the view is that we might spring up over time, but we've used the cash from those acquisitions to therefore pay that debt back down.
That's really been a commitment back out to the rating agencies as we talk to them about how we think about debt. Okay.
Hi, how are you? Just wanted to ask how significant are your credit ratings to your overall strategy? How important is it to be investment grade to Brown & Brown going forward, I guess is another way of saying it.
Sure. Well, we think our investment grade is very important to us. That was part of the reason of going out, being able to acquire 10-year money at 4.2%. That would've been really hard to do with non-investment grade. We're really pleased for a company of our size, our diversification, our geographic footprint, to be able to get investment grade. That doesn't happen to many companies straight out of the blocks. We think that really demonstrates the financial performance that we've been able to deliver over the years. We would want to be able to have the ability in the future, if the circumstance still presents itself, to go back out to the public markets if it ever is. We think being able to have investment grade is a great way to get access to really good capital through all of it.
One last one from myself. As I look at the striking graph that you put up on EBITDA margin, it's been something that I think I've gotten questions about in the past, how strikingly different it is from the larger national carriers. Obviously, you focus on certain markets that are different. I think the functional main question would be, why wouldn't the larger national carriers have smaller subunits that would go after those markets, and why wouldn't they be more competitive in those markets against which you're competing?
Yeah. Well, can't speak to the detail of their strategy underneath, but I guess I think we can at least talk about how is it that you have to service the middle market versus the national accounts? The model is very different. In the national accounts, you can serve many of those large customers out of hubs. When you're going into the middle market, especially from a retail perspective, you need to be out there in those communities because you're dealing with the CEO, CFO. You have to have a very trusted relationship because as part of being that trusted advisor means that you have to be very close to their business. You need to know what's going on.
They're going to view us just like their attorney, their tax accountant, their insurance broker, because we need to know where has their business been coming from, where is it going to. Well, if I'm only connecting with you once a year upon renewal, that's probably not going to work out very well through all of it because if you want me to be viewed as your advisor, I'm probably going to be coming seeing you a lot during the year to talk to you about your business all the time. Okay? Because during that timeframe, things may have shifted back and forth. By the way, you don't do insurance every day, right? Let's say you make widgets. Well, that's what your business is. Well, we do insurance every day.
That means that we need to be out there understanding your risk and how has your business maybe changed or will be changing and working that into your risk management strategy. You don't have anybody else to do that for you. If you go into the large national accounts, most of them have risk management departments. That's what they do all day, is they think about risk across their entire enterprise. They're generally coming to their broker saying, "Here's what I'm trying to get to around coverage, et cetera, on price." They've done a lot of that lifting. Middle market looks to us to do that. It's very difficult to therefore take that national model and bring it down into the middle market, and I think there's been some examples of that in the past where a number of organizations have tried it.
You have to make sure you use a very differentiated model back and forth. We don't go play in the national accounts. There's a reason why we don't go play in the national accounts because of the footprint that's also required in the middle market space. We think we've got one of the largest retail distribution footprints of anybody out there across all of the middle market. It does take quite a bit in order to get through all of those.
I got a question.
Yes.
Do you see any underwriting lines where the price doesn't seem to justify the risk that's taken on?
The question was, do we see any lines where pricing doesn't seem to match up with the risk? Well, there's a lot of capital coming into this market right now, and with that, it's in search of yield at this stage. Are there areas where there could be maybe irrational pricing going on? Yeah, there probably are. We don't see it across the board. What we see is we see a lot of pressure on some rates in areas where people are trying to get in. We don't see anybody trying to completely buy a market out because at some point, if you're trying to manage your risk, there will be a loss at some point. We see a lot of pressure on coastal properties today from where they were. Mentioned earlier the downticks that we're seeing, but nobody's doing completely irrational pricing. All right.
Well, no other questions. Thank you very much, everyone. Have a great afternoon.