Global broker sees upside in firm’s ‘middle space’ niche: Lots of big insurance players had wooed Rutherfoord Inc., but the company didn’t bite until last summer. [The Roanoke Times, Va.]

Apr. 4--A mob in Fallujah, Iraq, dragged the bodies of four ambushed security force employees from their vehicles and mutilated the corpses with shocking ferocity.

At the time, six years ago, Blackwater USA, employer of the convoy guards, was a customer of Roanoke-based insurance broker Rutherfoord Inc.

Blackwater became synonymous with controversy and eventually changed its name.

Rutherfoord continued to be, at least to casual observers, a sleepy little insurance agency with an oddly spelled name -- with headquarters tucked away at the corner of Norfolk Avenue and Jefferson Street downtown.

Big players in the insurance industry knew better. They came regularly as suitors. Rutherfoord was hot stuff.

"We have been approached for years, and we have been approached by almost everybody in the industry to sell," said George "Shad" Steadman, 57, Rutherfoord's vice chairman and chief operating officer.

"And we have never been interested," he said.

Until last summer.

That's when David Eslick, 51, chief executive officer of Marsh & McLennan Agency, undeterred by earlier snubs, landed an audience with Steadman and Thomas Rutherfoord Brown, vice chairman and chief sales officer. Brown's grandfather founded the brokerage in Roanoke in 1916.

Rutherfoord includes insurance brokers, who help clients find the best coverage among insurance companies, and agents, who represent insurance companies.

Courtship and consummation

Eslick talked about Marsh & McLennan Agency's newly fledged strategy to enter an insurance market dominated by Rutherfoord and comparable firms serving, across broad regions, medium-sized and smaller businesses.

MMA, based in White Plains, N.Y., wanted Rutherfoord, badly, because Rutherfoord promised instant access to this "middle space." MMA was established in October 2008 by brokerage giant Marsh, a subsidiary of publicly traded Marsh & McLennan Cos. Marsh describes itself as the world's leading insurance broker and risk adviser.

Marsh focuses on large customers -- Fortune 1000 companies and up -- and saw growth potential in the segments Rutherfoord served.

"Marsh has been very successful in that upper market, with major market share," Eslick said in a March 25 interview during his first visit to Roanoke.

"But if you look at long-term growth potential, that market is limited. The Fortune 1000 is 1,000 [companies]," he said. "If you come down to the middle market, where Rutherfoord plays extremely well and we're looking to play, you've got over 1.1 million companies [as potential customers]."

Eslick promised Steadman and Brown that the Roanoke born-and-bred company would retain its employees, identity, culture, customers and name. Rutherfoord would gain access to Marsh's capital and countless resources.

The two men were interested.

"They didn't want us for what they might turn us into," Steadman said. "They wanted us for what we are."

Eslick nodded.

"Frankly, my biggest concern was, in talking to Shad and Tom Brown and Tom Rutherfoord [Jr.], whether we could get to the point that they would have heard enough and believed it and trusted that how we described the partnership was how it was going to be," Eslick said. "And we were able to get there."

On March 16, Rutherfoord announced its acquisition by MMA. Terms of the deal were not disclosed.

Both Steadman and Eslick repeatedly said that Rutherfoord negotiated from a position of strength.

"This was not a distress sale," Steadman said.

Eslick said he has spent time during his career with "hundreds of organizations" and that Rutherfoord is an exceptional company.

"When you look at the performance of the Rutherfoord organization, you can't do much better," he said. "Solid organization, solid financials, solid results."

Rutherfoord has 10 offices, ranging from Philadelphia to Mobile, Ala.

Gain without pain?

Before the formal announcement, Steadman had stayed awake at night.

"I had these questions running through my head -- when I announce this to my employees, what is the first sentence out of my mouth?" he recalled. "What do I say?"

Steadman said employees seemed to understand the transaction's potential benefits. MMA pledged to keep the company's 300 employees, including about 80 in Roanoke. Employees gained more opportunities to move into leadership roles, Steadman said.

"We did a great thing for them," he said. "They saw a great enhancement in their retirement funds."

Understandably, there was anxiety, he said.

Some employees remain anxious. Steadman acknowledged the deal has risks.

"The down side is probably the uncertainty," he said. "We're at the beginning of this strategy [of MMA's]. We are in here early and it sounds great to us, and our instincts have been good in the past. But is there any guarantee it's going to be successful? I guess there are no guarantees in life."

A cautionary tale

In 1983, Frank B. Hall & Co., then one of the nation's largest insurance services firms, acquired Chas. Lunsford Sons & Associates -- a company founded in Roanoke in 1870.

On March 26, Charles Lunsford, long retired, described a relationship that turned sour.

"It did not improve our situation at all," Lunsford recalled. "It was good for the owners, and I was one, but I began to see less and less attention paid to the company locally."

Lunsford said Hall became disinterested in Lunsford's local customers, which included Roanoke Electric Steel Corp., Davis H. Elliot Co. and others. And Hall was less committed to supporting the Roanoke community, Lunsford said.

Eventually, he said, "some employees came to me and wondered whether the egg could be unscrambled." Lunsford helped negotiate a deal to buy back the company.

He emphasized that Rutherfoord's relationship with MMA might yield happier results.

"Every deal is different," he said.

Thomas Rutherfoord Jr. said Rutherfoord's acquisition is not comparable.

"We're an entirely different company," Rutherfoord said.

Steadman said MMC has described publicly, to Wall Street and shareholders, its strategies to leverage partnerships with Rutherfoord and other acquisitions.

"They are on the record," he said. "This was not a private conversation."

How does Thomas Rutherfoord Jr. imagine his father, Thomas Rutherfoord Sr., might have reacted to the sale?

"I think he'd be delighted," he said. "He was always pushing the envelope, looking for a good challenge."

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