Broker-Agency Consolidation Picks Up as Reforms Kick In.

Mergers and acquisitions among brokers and agencies are heating up as time runs out to take advantage of the soon-to-expire accounting method of pooling of interest, some industry analysts say. But others say the accounting change isn't fueling the consolidation and suggested other factors, such as financial-services reform and increasing demands on brokers to implement expensive new technology.

Some 190 broker/agency acquisitions took place in 1999, up from 107 transactions in 1997, said Nik Fisken, an equity analyst with Stephens Inc. Even more are expected this year. For example, Arthur J. Gallagher & Co., which typically acquires five to 10 agencies annually, has acquired nine agencies so far this year.

Part of the spike in acquisition activity can be attributed to companies taking advantage of pooling-of-interest accounting, which might end in December, said Michael J. Cloherty, executive vice president of Gallagher.

The purchase method, which would replace pooling, requires a buyer to record the purchase price of the other company. It includes goodwill, or the difference between the purchased company's actual assets and the price the buyer paid. Companies currently can write off goodwill over 40 years, but that could be reduced to 20 years under the new rules.

Pooling-of-interest accounting allows two stock companies to simply merge their balance sheets, making it impossible to tell which company was the buyer and which was the seller. Both methods are allowed today.

Some analysts, including Bobby Reagan of Reagan & Associates, doubt whether the looming end of the pooling of interest is sparking acquisitions.

Most buyers, except for Gallagher, won't use pooling because the transactions are so small, Reagan said.

Ira Zuckerman, an equity analyst with Nutmeg Securities, agreed, saying buyers will simply adjust their price to absorb the impact of purchase accounting.