Adam Klauber, the author of the report and Cochran, Caronia & Co.'s managing director of equity research, said that rapid growth through acquisition over the past decade has saddled large brokers such as Aon and Marsh with legacy expenses--including pension liabilities, debt and goodwill.
He said, big players will have less financial flexibility and greater expense drag than their smaller competitors.
The situation is further complicated by the softening rate environment in the industry and the elimination of contingent commissions by large brokers in response to recent investigations by New York Attorney General Elliott Spitzer, according to the report.
Mr. Klauber said mid-market firms like Brown & Brown, Hub International and Hilb, Rogal & Hobbs will fare better. "Because they are smaller, these firms can continue to achieve incremental growth through acquisitions," Mr. Klauber advised.
Mid-market operations, he said, "also have less debt and greater financial flexibility. In addition, unlike the larger firms, the mid-market firms are continuing to generate revenue through contingent commissions, and can use these funds to grow their business."
Mr. Klauber said mid-market brokers with a greater potential to grow will be a better investment over time. A full copy of the report can be found at www.cochran-caronia.com.