Good day, and welcome to the Brown & Brown Incorporated analyst call. Today's conference is being recorded. Comments made during this presentation, including those in the presentation slides concerning the contemplated acquisition of Beecher Carlson Holdings Incorporated, and its subsidiaries by Brown & Brown Incorporated, and any following question and answer session in all materials made available in connection with this presentation, may include certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by these laws. These forward-looking statements include information about possible or assumed future results of the operations.
All statements or other sub-statements of the historical facts included in this presentation that address activities, events, or developments that we expect or anticipate may occur in the future, including such things as estimated first 12-month GAAP EPS acceleration, future revenues, including the expected 2013 revenues of Brown & Brown, Beecher Carlson, and on the combined basis and standalone basis. EBITDA, including the Beecher Carlson on standalone basis, capital expenditures, business strategies, competitive strengths, goals, growth of our business and operations plans, and references to future success may be considered forward-looking statements. We do use words such as anticipate, believe, estimate, expect, intend, plan, probably, or similar expressions we are making forward-looking statements. Many risks and uncertainties may impact the matters addressed in these forward-looking statements.
These include those identified in the May 21st, 2013, press release related to the complementing transaction and those listed in our most recent quarterly report on Form 10-Q filed with Securities and Exchange Commission. Many possible events or factors could affect our future financial results and performances. Those could cause our results or performance to defer materially from those we express in our forward-looking statements. We do believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and therefore also forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included in this presentation, our inclusion of this information is not representation by us or any other person that our objectives and plans will be achieved.
Our forward-looking statements speak only as the date made, and we do not update these forward-looking statements unless securities laws require us to do so. At this time, I'd like to turn the call over to Mr. Powell Brown, President and CEO of Brown & Brown. Please go ahead.
Thank you, Ryan. Good afternoon, everybody. We're very excited about the signing of a merger agreement with Beecher Carlson and Brown & Brown. I'd like to talk a little bit about the overview. I'm going to have Dan Donovan and Steve Denton talk a little bit about their operations. I'll make some concluding remarks, and we'll open it up for questions. Last year, 2012, Beecher Carlson ended the year at approximately $105 million of revenue. As you see on page one, our estimated top-line revenue through 6/30 is $110 million, with the adjusted EBITDA of $33.1 million. We're going to pay total consideration of $336.4 million, which is $360 million in cash, with adjustments for net working capital and the value of net operating tax losses, plus certain long-term incentives to drive the business going forward.
We're going to fund this with $300 million of cash, which we have on our balance sheet. We're going to borrow $60 million in bank debt, which is either current relationships or new relationships. We expect our accretion on a GAAP basis to be $0.05 to $0.07. This is subject to customary regulatory approval, Hart-Scott-Rodino, and others. We anticipate an anticipated potential close in July. With that, I'd like to turn it over to my friend, Dan Donovan, CEO of Beecher Carlson.
Thank you, Powell. This has been a great and exciting day for Beecher Carlson, for our clients, and for the teammates throughout our 28 offices throughout the country. I've had a chance to talk to a number of our clients. They share our excitement for the new platform that Beecher Carlson will operate under. I'll take a brief moment to give you an overview of our firm. Then I'll turn it over to Steve Denton to go a little deeper dive in our organization. Beecher Carlson is made up of three divisions. Starting with our smallest one is our MGA operation, be similar to the Arrowhead operation inside Brown & Brown. Our agency operations, which is similar to the retail operations of Brown & Brown. As you've seen, Beecher Carlson has a large footprint in the state of Oregon, also operations in Arizona and Mississippi.
The majority of our business at Beecher Carlson is what we describe as large account, which really is companies that have inherent risk from either what they do or where they're located. We are described as a boutique niche broker. That would encompass roughly the Fortune 2000 as we all would know it. On a typical large account, you will see anywhere from four to eight Beecher Carlson resources. We have multiple touch points on our large accounts. We run a single profit center at Beecher Carlson, so you also see that one account may be serviced from more than one Beecher Carlson office. We put our best and brightest on these accounts. The other thing that we're proud of and we continue to build out is technology. We leverage technology to differentiate ourselves from our competitors.
We've got some proprietary technology products and innovations that are cutting edge in our industry, which has given us a competitive advantage over our competitors in a number of fields. At the end of the day, what Beecher Carlson is about in the large account division is lowering the cost of risk of our clients. That is through really focusing in on as much their premiums, but as their losses and their loss expectancies through risk control. With that, I will turn it over to Steve Denton, who will assume the position of Chief Executive Officer of Beecher Carlson at the closing of this transaction. Steve?
Great. Thank you, Dan. I'll dig a little deeper into the three groups that Dan talked about. First, starting with our large account group, the way we think about this business is specialization. Specialization drives everything that we do in our large accounts business. We say that by the way we sell accounts and the way we service accounts first is around industries. There's specific industries that we're involved in and go deep. Energy, healthcare, hospitality and gaming, manufacturing, real estate, and financial institutions. We go across those industry groups and bring our product expertise into each one of those relationships. That includes our casualty group, our property group, our medical malpractice, executive liability, our energy builders risk capabilities, our captive management capabilities, our Bermuda wholesale operations.
The way that Beecher Carlson goes about selling and retaining and servicing our large accounts is really, I call it a 50/50 mix. It's very important for us to drive growth, sales and sales discipline are very important. Our producers and our salespeople are technical experts. We don't have a lot of knife and fork people. We have people who are technical and very deep in an industry or in a particular product, we hold them accountable, they hold themselves accountable every day for driving activity. Across that comes our product expertise, that's where we're very deep, we take that service on that aspect from cradle to grave. For instance, when we do a casualty line of business, everything from claims to building the submissions that go to market, to certificates of insurance, to ID cards, is built all the way through those groups.
Moving to OnPoint, which as Dan says, is about 10% of our revenue, or $10 million. Those are built around specific niches. This business has been built both by acquisition and by building things from the beginning, things like our contractors equipment program in the forestry industry we built from de novo, from scratch. Our biggest program in OnPoint is our tribal program, which is national in scope sells to tribal nation groups across the country, both their public entity aspects of their business, their gaming aspects of their business. We have several of those programs, most of the distribution in OnPoint is done with third-party brokers and agents. That, we think, is a tremendous opportunity in Brown & Brown with their retail network, taking these programs getting more distribution out front.
The third area of the company, which is very important, most of this has been acquired revenue by Beecher Carlson, is our agency groups. The way we define our agency groups is, it's people who do business in a geographic manner. They're looking for their teams to be as close to them as possible and bring the expertise. Our largest operation is Oregon, as Dan talked about. As we look at this combination with Brown & Brown, we become a very dominant player in Oregon with over $30 million of combined revenue. We also have operations in Washington, a small office in Washington and Arizona and Mississippi.
As you look at our geographic spread, as Dan talked about, in our large account business today, our major operations are in Atlanta, New York, Boston, Nashville, Denver, California, with people spread out in some other locations, but those are our major locations. We see the opportunity here to invest and go deeper in places like New York, in the middle of the country, in places like Chicago and California in our large account platform. Our large account revenue, which in 2012 was approximately $68 million, is pretty evenly spread across our industry groups and across our platform. Our casualty group is the largest group at 31%. That's primarily based on the fact that Beecher Carlson, the historical company, since the late '80s, was built as a captive and a casualty company.
The other groups, the executive liability, property, and healthcare, are actually growing at a faster rate and will continue to balance that portfolio. Dan, turn it back to you to talk a little bit more about OnPoint.
Sure. As mentioned in the OnPoint by Steve, a little more than 60% of our revenue in OnPoint is dedicated to our tribal nation, and our ability to deliver both, as Steve mentioned, to the casino operations and in municipalities around tribal. We have added a risk management component to that offering as we have some dedicated people who have spent their careers around tribal law as respects to the insurance of tribal law. That adds a differentiator to our tribal offering. Our second largest is a manufactured housing program that we run out of Arizona. This is very much a growing field, both in the industry and for Beecher Carlson. Then the remainder of our programs make up about 16% of our revenue, which is spread out with about four or five additional programs. With that, I'll turn it back to Powell.
Thank you very much. Great reports. Somebody on the call may ask the question, why Beecher Carlson?
I would tell you that the way we approach this acquisition was just like the way we approach any other acquisition. We start with the concept of good people. Good people run and develop good businesses and attract more high-quality people. That is absolutely, categorically the case with Dan Donovan and Steve Denton. We, Scott Penny and I and others, have spent a lot of time with Steve and Dan since December of last year. Scott and I, from afar, have always had a very healthy degree of respect and admiration for Beecher, and yet we did not know Steve or Dan personally. We knew of them and knew of the capabilities of the firm.
When this opportunity came about, we went in, just like we would go in on any opportunity. We would ask all types of questions. We tend to ask lots and lots of questions. We did. The more we got around them, the more we liked them. The more thought that there would be some great opportunities to work together. That's really how we started this process in December of 2012. Now somebody's going to ask the question, in the large account business of $68 million revenue, how much of that is fee and how much of that is commission? The answer is, about $47 million is fee business and about $21 million is commission. Every client is different. Many of them are on fee agreements, as you know. Many of them are on commissions.
It just depends on the client. Obviously, their specialization, both in the verticals and the product expertise across those verticals, are something that was very attractive to us. At the end of the day, Beecher Carlson, we believe from top to bottom, is an organization that is not only run and led by, but is comprised of some of the highest quality people in the industry. That's the type of people that we think of that make great Brown & Brown teammates. We're excited to have all of their teammates join our teammates in the near to intermediate term. I would like to go to page nine, briefly. Talk about Beecher and what Brown & Brown looks like. Trying to show you what a combined basis would look like.
Obviously, this is not high finance, but at 105 last year versus our 1.2, we're showing about 1.305 on a combined basis. That does not include internal growth, of which they are growing organically and we're growing organically, and that's good. I would say, before we turn it back over to Ryan, a couple things. Number one, a transaction like this doesn't come together without the help and great effort of a lot of people. I'd like to first and foremost thank Scott Penny, our Chief Acquisitions Officer and Regional President, Rich Freeborn, our Internal Operations Director, and David Lotts, our Chief Acquisitions Counsel, for everything they've done in concert with all the other Brown & Brown teammates to make this possible. I want to say thank you to all of you, and I really appreciate it.
The second group of people I'd like to thank would be Dan and Steve. I would tell you that we always talk about something that is, are you able to spend personal time with somebody outside of work and never talk about work, and get along? If the answer to that is yes, then that's a good place to start. If the answer to that is no, you probably ought to not do the transaction. I want to thank Dan and Steve personally for all the hard work and effort that they've put in conjunction with their team. I know there's lots of other people on the Beecher team. These two gentlemen are very high quality insurance professionals, and we're excited to be working together as partners. Thank you very much to both of you.
Having said that, I would now like to turn it back to Ryan to open it up to any questions that anyone has about this exciting opportunity with Brown & Brown and Beecher.
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that's star one to signal for a question, and we'll pause for a moment to allow everyone an opportunity to signal. Once again, as a reminder, that's star one to signal for a question. We'll take our first question from Joshua Shanker with Deutsche Bank.
Yeah, thank you. My first question. It doesn't feel like coincidence that you guys have made a couple of very large, almost transformative acquisitions in the last 24 months, but the number of smaller acquisitions seems to be much fewer than it once was. To what extent does this preclude you from being in the market to look for smaller acquisitions over time? Or is it just merely coincidence and the smaller guys haven't sold at the price that you guys find attractive?
Let me answer the question in several parts. Number one, if you look across the entire space in 2013, there have not been nearly as many announced transactions in the first five months as there have been in years past. You'd say, "Well, why is that?" We believe that there was a pull-forward effect, where potential transactions in 2013 were pulled forward into the fourth quarter of 2012 due to tax For tax consequences, number one. Number two, Brown & Brown as the organization, is built on high-quality people that run high-quality organizations, and those can be smaller organizations, medium-sized organizations, or larger organizations. To your point, in the last, actually, if you want to be specific, in the last 18 months, we have announced two transactions in excess of $100 million. Arrowhead on January 9th of 2012, and this announcement today with Beecher Carlson.
The important thing that I would want you to take away from this is absolutely, categorically, no, we are not going away from really good $2 and $4 and $8 million businesses across the country. No. It's not a pricing issue. It is high-quality people. We want to find organizations with people that fit culturally, that we want to be in business with, and they want to be in business with us, two. Number three, every once in a while, an opportunity like this opportunity comes along, and we get excited when the people that we're talking to think about things in the same way that we do. Let me be real specific. A sales-driven culture, Brown & Brown, Beecher. Very client-focused on the service side, Brown & Brown and Beecher. Hiring the best people like athletic teams, Brown & Brown and Beecher.
Continuing to invest in our business and going forward, Brown & Brown and Beecher. Pretty good. I thought that's a pretty good match. Please don't take out of context the fact that we have done two larger acquisitions. Here's something that we pride ourself on at Brown & Brown. We have done a number of acquisitions over the years. It's 350-plus acquisitions since 1993. Having said that, we have our own internal due diligence for legal, for operational, and for financial. With that, we believe that when we consummate a transaction, we try to minimize and reduce the idea of execution risk, and now it's performance related. It's all upon the organization to perform based upon the expectations or exceeding those expectations going forward. I would say, no. No, we haven't changed our position.
Actually, if we were to put ourselves in your shoes, what we would want you to think about is that we have made two large acquisitions in the past, let's say, 18 months. If we were going to put ourselves in your shoes, what would we want to know? The answer is, we would want to know that it's a performance. It's straight up performance, not execution. We understand how to bring organizations together. We have proven that, and we feel good about that. Thank you for the question.
Nice. You guys still have cash on hand if something else came along. This isn't precluding your appetite.
What I would say is this. We currently have $300 million of cash on the balance sheet. That's earning 25 basis points. We're earning $750,000 of interest income on 300. We're going to borrow 60. We accrete about $30 million a month in free cash. We are excited to invest in the right opportunities, and we have developed significant relationships with financial institutions across the country, of which you would know by name, that are willing to allow us to invest in all types of businesses. We feel good about our opportunity, and we feel good about our balance sheet.
That's an excellent answer. In terms of accretion in year two and year three, do you have some thoughts about how we can think about Beecher Carlson along those lines?
Yeah, I'll give you an answer. The answer is that we don't project earnings forward-looking. I appreciate the question, but as you know, we're going to give you a little snapshot, a little nugget, and that nugget is 5%-7% GAAP accretion. We feel very good about it. As we grow and they grow and all that, it's all going to work out.
Okay. Perfectly fair. Finally, any thoughts on modeling amortization expense going forward with the impact of the Beecher Carlson transaction?
$6 million.
$6 million incremental.
$6 million ± a little bit. I give Cory the nod and the wink in here that it's a ±$1 million, but I think it's $6 million.
Okay. Excellent. Thank you.
Thank you.
We'll take our next question from Meyer Shields with KBW.
Thanks. Good afternoon, everyone.
Good afternoon, Meyer. How are you doing?
I'm doing okay. You?
I'm good.
I can never tell if this phone is working. Does Beecher collect material contingent commissions as part of that 105 or 110?
The answer is that there are contingencies that are available on the agency business. I believe I don't know the answer on the OnPoint. On the large account business, as you know, most of large account business is excluded from profit sharing and contingency contracts at the carrier level. There is some business that is commission-driven that may be eligible for contingency. Having said all that, the answer is no. Not a material number.
All right. That's helpful. Can you give us a sense as to what Beecher's organic growth has been over the past couple of years?
Sure. We'd like to tell you that over the last four to five years, that Beecher Carlson has grown somewhere in the neighborhood of five%-six% organically.
Each year.
I'm sorry?
You mean that each year, not collectively?
Each year, I'm sorry. Each year. Yeah.
Yeah.
Sorry.
[$0.05] each year.
That's what I thought he said, then I said, yeah. Each year, yes.
I did.
Remember that, some a little higher, some a little lower, but that's the average. That's important.
Right. Yeah, no, that's what I was looking for. Have you done a comparison of where you collect commissions and Beecher collects commissions, whether you're getting paid basically the same commission rate by the same carriers? Are there any opportunities there?
We haven't done that calculation yet. We do know that they have very good agency operations. I would assume, I don't like to assume anything, but that they're very well-run at the local operating level, and they run their business in a similar fashion to the way we do. I don't think there's a material pickup there, Meyer.
Okay. That's fantastic. Thanks very much.
You're welcome. Have a nice day.
We'll take our next question from Edward Williams with Capital Returns Management.
Hey, just a little follow-up question on the $33.1 million of EBITDA estimated. Just wondering if any of that was non-recurring.
I'm sorry. Are you talking about the $33.1 million of EBITDA, did you say?
Yeah. Did that not come through clear?
No. The answer is no, there's not a significant portion of that that would be deemed non-recurring.
Thank you very much.
We'll take our next question from Brett Huff with Stephens.
Good afternoon. Congrats on the deal, everybody.
Thanks, Brett.
One housekeeping question. Paul, when you said the GAAP accretion was $0.05-$0.07, I missed the timeframe. Was that for this year or on an annualized basis?
First 12 months.
Okay. Two questions. One, they're kind of related, how will the Beecher specialization expertise sort of spread out or impact the large retail network that Brown has? Do you see opportunities to use that now sort of more specialized asset, in a more distributed way, number one? Number two, kind of related, for the Beecher folks, when you're winning against competitors who probably are larger and maybe have more resources and et cetera, what's the wedge that you use to win or what do your clients tell you you're winning on versus the competition or the incumbents? Thanks for your input.
Let me make sure, Brett, I got the second question correct. Are you talking about the Brown & Brown wedge or the Beecher wedge?
Sorry, the Beecher wedge. Thank you.
That's what I thought. Okay. What I'd like to do is answer the first, and I'm going to turn it over to Dan to answer the second. As it relates to specialization, as you know, Brett, we have retail offices, approximately 114 retail offices across the country that operate in 36 states. In those operations, some of them have specific specialization inside of an area like a healthcare or on nursing homes or construction or specific types of construction, and some are generalists. Having said that, Beecher has done an exceptional job of leveraging the knowledge in the platform across the platform. We're not going to say to anybody at Brown & Brown, "You must specialize." No, that's not the case.
What we're going to say is to the extent that we can use this institutional knowledge to win and bring to bear to the best interest of our clients each and every time, then we're all in. We're not going to mandate that Beecher, our large accounts, go onto a Beecher platform. That's not the case. We're not going to mandate to somebody at Brown & Brown that you should and must use these so-called resources inside of. Not unlike anything at Brown & Brown, it's going to be very systematic. It is going to be an opening of opportunities to bring solutions to our customers and prospects going forward. I do believe, Brett, long-winded answer, to say that there are some opportunities to leverage that across the platform, but there will not be a mandate.
Having said that, I'm going to let Dan answer question number 2 about the wedge.
Thank you, Brett. This is Dan Donovan. Yeah. The feedback we receive in our large account division on the difference between us and our competitors really comes down to expertise, and out of that expertise comes creative solutions to problems. If you walk around a Beecher Carlson large account office, you will see a group of people, and each one of these individuals has an area of their expertise, whether that is a product expertise in property, casualty, executive liability, whether it's loss control or claims. You lay on top of that, if it's a property person, they usually have a deep real estate. They're in our real estate practice. Whether it's a casualty person, they're in our manufacturing practice or a retail practice. That's the feedback we have. We keep it through, we provide a high level of service.
As I mentioned earlier, there's four to eight people touching these accounts. Again, as my opening statements is, what our target is every year, it's the cost of risk. We set goals. As Powell said, we're on fees. A number of times, we've got a variable part of it and try to identify how we can lower the cost of risk of these clients, whether that is through our technology platform called Zoom that we use in our workers' compensation book of business, or whether that is restructuring large property accounts and try to buy better limits at a better level. That's the feedback we hear. It's been a constant feedback for the past eight or nine years at Beecher Carlson.
Great. That's what I needed. Thanks, and congrats again.
Thanks, Brett.
Once again, as a reminder, that's star one to signal for a question. We'll take our next question from Jay Gelb with Barclays.
Thank you. What is Brown & Brown's total fee-based revenues on an annual basis currently before the acquisition?
Yeah, the answer, Jay, is we haven't disclosed the exact amount. Historically, what we've said is our commission-driven business and retail is about 96% or 97%. That's what we've said historically.
All right. You broke it out just now for Beecher Carlson, so I'm trying to get a sense of what the general mix is between fee and commission overall.
Right. The answer is a lot of commission, and we broke out the fee for you on Beecher so you had transparency into it. As I've said, at Brown & Brown, we don't have an exact number, and we haven't given it in the past, but it's roughly 96%-97% of the retail spectrum or space is commission.
Okay. Just for modeling purposes, maybe for Cory, what should we expect after the acquisition closes that the annualized depreciation and amortization expense would be?
Well, the depreciation is, you're going to add another about $550-$600, and the amortization will add between $5.9 million-$6 million. The interest cost should probably go up possibly $900,000.
$900,000 a year?
Right.
Okay. I'm sorry, the amortization expense was around $6 million.
Probably $5.9 million to $6 million.
A year.
A year.
The amortization expense?
That's the incremental amount from what Brown & Brown has on the current financial statement. I'm giving you incremental amounts.
Right. If in 2012 amortization was $64 million, I just want to make sure.
Yes.
I'm doing my
That's $70 million.
Oh, I misheard you. All right, $70 million annualized.
That's correct.
For amortization. Sorry, I misunderstood you.
All right.
Thank you very much.
We'll take our next question from Ryan Bryns with Langen McAlenney
Hi. Good afternoon, everybody.
Afternoon.
Just why is it the right time to enter the large commercial space? Then just to follow up on that, is this an entrée for you guys to build out more of a large account space as well?
Well, Ryan, thank you for the question. Number one, we don't view this as a cultural shift or a shift away from what we've done. Actually, we at Brown & Brown write more middle and upper middle market business than you might recognize. So this is not a significant shift away from what we have done in that case, in terms of handling those type of accounts. Having said that, we as an organization, as you know, are very interested in getting the best people on the team for the long run. The answer is, we met the people and have spent a lot of time with the people at Beecher and think there's a great opportunity for growth.
So what I would tell you to your question is if you or anybody else on this phone call today know of a business that would benefit from the services that Brown & Brown and Beecher could provide, if you would please call Cory Walker, we'll call on that business right away. Whether it's a big account or it's a medium-sized account or a personal lines account, whatever it is, we can do it. Don't get too far ahead of yourself saying we're stepping outside of the norm. The answer is, we have historically said that fee business is something that some organizations have not been able to generate acceptable returns. We believe this can generate acceptable returns. We believe it can grow organically, and we're very excited about the teammates that are joining us.
Great. My last question is, the EBITDA margin looks like they're running about 30% for Beecher. Just wanted to see where those were historically, and if there's an ultimate target that you can get that to the rest of the Brown retail segment.
Yeah. What I would tell you is this. As you know, Ryan, we always talk in an operating profit basis. Operating profit is EBITA, we always target a 25% or greater EBITA margin. The answer is, this is a 25% to slightly over 25% EBITA business. We don't give guidance on the margins on this, but we believe that it will perform well going forward.
Great. Thank you.
Hello?
Yep.
We'll take our next question from Elyse Greenspan with Wells Fargo. Caller, your line is open. Please check your mute button. We're unable to hear you.
Hello. Sorry about that. Just following up on the margin question, I guess. Can you just talk about the trade-off in terms of doing the transaction when obviously it's running below the margins on your book? I know, just not in terms of maybe giving guidance on where they could go, but just the expectations for the margins on the Beecher Carlson book to kind of improve from here going forward without giving the exact number.
Right. Well, Elyse Greenspan, as you know, we look for a 25+% operating margin in a pro forma to do an acquisition. As you know, last year, our operating profit average was 33.5%. We as an organization, across the entire platform, look to constantly and consistently improve not only in growth, but in operating margin and efficiency. The answer is, this is not outside of the norm relative to something that we've acquired, which over time, as it continues to grow and we do some really neat things together, we think that the margins will improve. What I want you to know is we believe that is an opportunity, not as a negative, because this is not unlike any other acquisition that we do.
We do a number of acquisitions that are in the 25%-30% operating margin range that incrementally gets better going forward, it's very positive for the team.
Thank you. Just a couple other quick questions. Just guidance, maybe, in terms of the tax rate going forward. Should we see any change there?
No, there shouldn't be that much. There could be just a slight amount because Georgia and Oregon both have a little bit higher state tax rate, but it's going to be marginal.
It seems, I guess, the large account business that will be operated on separate outside of your current kind of segments, we'll see the other two segments kind of folded in. Is that what we should expect going forward around in the Q3 when the deal closes?
Yeah, no. Let me address that. Retail will be in the Retail division of Brown & Brown, Programs will be in the Programs division of Brown & Brown. That's how you'll see it going forward. It'll be just like what you see today in terms of our four divisions.
Okay. Lastly, I guess you referenced, I think when I download the slides from the site, I think the slide nine that you guys had mentioned of the combined mix, I don't think that I see that there. Just, I don't know if maybe there's just something wrong with my copy, I know that you had mentioned a combined business mix. Is that what slide nine is supposed to show?
What do you have on eight? What's your eight?
That's the OnPointe business.
Okay. We'll find out about that, Elyse, if we don't have it, we'll post it. Thank you very much. You got that, Cory?
Okay. Thank you for all the questions.
Yep, have a nice day.
We'll take our next question from Mark Hughes with SunTrust.
Thank you. Good afternoon. How much opportunity, Powell, for your retail to sell the programs that the company offers through their MGA, Beecher Carlson does?
I'm sorry, can you just repeat that? I want to make sure I got the entire question, Mark.
How much opportunity for your retail to sell the MGA programs that Beecher Carlson now offers?
Well, actually, believe it or not, we can actually do business with them today and already do. For example, we do some business with their tribal program. As you know, we don't force anybody to do business with a said program or wholesaler or whatever. What we're trying to do is bring the best solutions to our customers each and every time. What I would say is they do have some proprietary programs that are smaller, that they distribute through their retail offices. That may be something that would be an area where we could grow, but we haven't gotten into that just yet. Like I said, the bigger programs in OnPointe are open programs where people can, and we can already do business with them.
One final question. What's been the growth trend within the large account business? Has that been growing consistent with the 5%-6% overall organic?
Mark, as you know, we don't give guidance on segments like that, and I appreciate the question, but we'd say that the overall business has grown 5%-6% over the last four to five years.
Thank you.
We do have a follow-up question from Meyer Shields with KBW.
Thanks. One last modeling question, if I can. Is there any unusual seasonality to either revenues or expenses on the Beecher side that'll be coming over?
The answer is not that we're aware of. We do think there's a little heavier waiting on the revenue stream in the second half of the year. Meyer, I think Cory would need to answer that later for you, but I don't think it's a significant number. When I say that, I don't want to create a funny expectation, but is it 55/45 or 60/40 second half of the year? Maybe, but I don't exactly have that number.
Okay. I'll tag Cory in a little bit.
We'll take our next question from Jonathan Brandt with Ruane, Cunniff & Goldfarb.
Hey, Powell. Hey, Corey. How are you? Congratulations.
Hey, Jonathan. How you doing?
Good. Just quick question. You said that their EBITA margin is slightly above 25%, but when I did the math, it was more like 29.6, and I thought you had said earlier that there wasn't really anything non-recurring in the trailing 12 months. Maybe I'm just splitting hairs here, but
No, you're not splitting hairs. We've got a cost in there for incentives, which is just over $4 million of incentives annually, which would be expensed if in fact they meet growth and operating margin targets at a future date.
Okay. In terms of thinking about the multiple of EBITA you paid, do you think about it after those incentives or after expensing those, or would the EBITA grow by $4 million so that you'd still be back to 32.5, which is how I got to my 29.5? I took the 33.2 and subtracted.
Yeah. What I would say is this. If you remember, Jonathan, when we announced in January of 2012, the Arrowhead transaction.
Right
Everybody said we paid 10 times EBITDA.
Right.
We said, "That's correct." We said that we think it has the ability to grow, over time, it would work out where it would be more in the traditional range of a purchase price, which it is moving in that direction.
which we're very pleased about. The way I would look at it, once again, this is my own personal opinion that you're asking, is if we paid a net consideration of $336 and it's $33 million of EBITDA, that would be 10 times.
Once again, everybody's going to do it a little differently.
Knowing the way you think about the business
The way we look at it is we paid $360 million in cash. We have $7 million of working capital requirements. We have NOLs that are roughly $43 million, which we believe will estimate a tax savings of $16.6 million. You put all that together, shake it up, you get $336.
That's pretty good.
Right. Should I think of the EBITA as being $32.6 or $32.6 minus $4 for the incentives that are additional?
I think that you think about it after take the $4.3 million of incentives out.
You mean subtract it from the $32.6?
Well, my point is that is in full anticipation of the leadership and the others involved hitting that desired goal. If, in fact, they hit the desired goal, we'll all be very happy.
You'll be at least at $32.6 if they achieve that.
We're going to all be very happy, Jonathan.
That's over a one-year period, that $4.3 million, or?
That's a one-year period for several years in the future.
It'll cover a several year period, but the $4.3 million is how much they'll make total.
No, $4.3 million is the expense.
The annual expense.
Annual expense in the future. That's correct.
Okay. All right. Thanks again.
Thank you.
Congratulations.
Have a great day, Jonathan.
Thank you.
We have no further questions in the queue at this time.
Okay. Thank you all very much for your time, and we look forward to talking to you again in July on our quarterly call. Have a great day. Bye-bye
That does conclude today's conference. Thank you for your participation