“We lost a lot of business”

With insurance mergers and acquisitions (M&A) at a rapid pace, organizations often say they prioritize strong finances and strategic alignment. But what is the make-or-break factor in a deal?

For Arrowhead Programs, a division of Brown & Brown, culture isn’t just a buzzword or trend – it’s the foundation for long-term success in M&A.

MGA, which recently changed its name from National Programs, manages about $7 billion in premiums, making it one of the largest players in the world, according to Chief Strategy and Analytics Officer Jimmy Curcio (pictured). The division operates about 30 offices and 60 programs and is growing rapidly through acquisitions.

In an interview for Insurance businessCurcio explained that Arrowhead Programs’ decentralized model, in which acquired companies operate independently, is consistent, but the core culture remains unchanged.

“We walked away from a lot of deals, a lot of transactions that had really strong financials,” he said. “You can have the strongest financials in the world. If your culture isn’t strong, it won’t work with us.

What question can help identify cultural incompatibility in mergers and acquisitions?

Mergers and acquisitions are a significant part of Arrowhead Programs’ strategy, but the process of evaluating partners and integrating new businesses into the larger organization is not without its challenges.

Curcio acknowledged that there can be surprises in the M&A process. “There are always going to be things that you didn’t catch in your analysis or discussions, right? That happens all the time,” he said.

To mitigate those surprises, Curcio said Arrowhead spends significant time getting to know the people it acquires on both a professional and personal level. They emphasize the importance of building personal relationships and going beyond the numbers to understand the people behind the business.

One strategy the company has implemented is to bring together leaders of potential acquisitions with their internal team for roundtable discussions, which allows both sides to see how they work together and whether there’s a cultural fit.

“We’re constantly refining our process,” Curcio said. “One of the biggest lessons is making sure we spend enough time getting to know the people involved. There are often a lot of buyers in the transaction process, and sellers are busy with meetings. So how do you make sure you get to know the people?

“One technique we’ve started using is to connect our people with their people. We have a growth and innovation team that includes leaders in analytics, operations, marketing and technology. We sit down with potential acquisitions to discuss their goals and challenges and see if we can help.”

The experience also taught Curcio a few lessons about spotting early warning signs of cultural incompatibility. He pointed to a simple but telling question they ask in initial meetings: “What are your top priorities?”

If a potential partner doesn’t mention their employees or their successes, this is often a red flag.

“The people who are the proudest, who you can tell are proud of what they’ve built … are the ones who also seem to run successful businesses,” Curcio said.

Red Flags and Conclusions on Insurance M&A

Ultimately, Curcio advised other leaders to never sacrifice culture for financial gain and to ensure that potential acquisitions are culturally integrated.

For Curcio, cultural fit isn’t just a checkbox in due diligence, but an essential part of the decision-making process. That people-first philosophy drives Arrowhead Programs’ M&A strategy, as well as its core values. “Do our people get along? And that’s a two-way street. Do they like us?” he said.

In the wake of COVID-19, remote and hybrid work environments have only underscored the impact of cultural fit among acquired companies. The challenge is ensuring that the “secret sauce” of an organization’s culture remains intact without traditional office dynamics, such as so-called “water cooler” interactions.

But Curcio also doesn’t believe in a “perfect fit” between a new acquisition and its parent company. Instead, insurance leaders should make sure cultural differences don’t conflict with existing organizational values, even if the new entity operates differently.

“Everyone will have their own culture. We just want to make sure it doesn’t conflict with our culture,” he said.

What are your thoughts on culture vs. finance in M&A insurance? Share your comments below.