The recent acquisition of Otis-Magie Insurance Agency in Duluth by a firm called Marsh & McLennan Agency LLC was too small to be statewide news. And given the towering wave of consolidation sweeping the insurance brokerage industry, one more deal isn’t particularly noteworthy, either.

But this little deal was still worth following, because what’s interesting about the Marsh & McLennan Agency story is how this company goes about building its business through acquisition. Any company with the money can buy a competitor, of course, but being savvy enough to do that well and generate good returns is a famously difficult challenge.

As described by the leaders of the Marsh & McLennan Agency in this region, their approach sounds more like a careful hiring and recruiting process than going into the market to buy companies, and that’s clearly one way to reduce the risk upfront of making a very bad deal.

You have likely heard of New York-based Marsh & McLennan Cos., a big, publicly held firm. But what it calls the Marsh & McLennan Agency is only about 10 years old. Usually referred to as MMA, it has clients in the middle market, a broad term that can mean relatively small businesses up to companies with more than $1 billion in revenue.

Marsh had a dominant market share among the Fortune 100, said Tim Fleming, the chief executive of Marsh & McLennan Agency’s Upper Midwest region, but decided to plunge into the middle-market segment because nobody had more than a 5 percent share.

There was only one way to begin building up MMA, and that’s through acquisition. So eight years ago MMA acquired RJF Agencies, Inc., an insurance broker based in Brooklyn Park that had been founded in the mid-1980s and then had about 150 employees and $25 million in annual revenue. MMA planned for RJF to be its backbone in this region.

Bill Jeatran, the RJF CEO, and Fleming, then the agency’s president, agreed to stay and work for MMA. Since the date of the acquisition, Jeatran has become president of the Marsh & McLennan Agency and Fleming now leads its Upper Midwest region.

Under their direction, MMA has acquired more than a dozen firms in the Upper Midwest. This included buying firms in Fargo, Sioux Falls, Milwaukee and now a second agency in Duluth with the latest deal.

An insurance agency, MMA included, is mostly a sales and customer-service company that connects insurance carriers with the clients who don’t have the time or expertise to stay on top of what they need and what’s available in the insurance market. MMA has a simple approach to acquisitions: looking for agencies that are growing faster than MMA and doing so by adding clients and taking market share rather than buying other agencies.

Next is evaluating whether the principal owners of a firm they have approached are more than serious about being willing to stay with MMA after they sell their business; MMA wants them to be eager to stay. Of the 14 acquisitions in this region completed so far, in each case the former owners are still fully engaged at work, said Jill Lowder, chief operating officer of the Upper Midwest region.

More than a dozen deals may sound like a pretty brisk pace of acquisitions, but it turns out that Marsh and MMA are industry slowpokes. Marsh was well down the list of the top 20 industry acquirers at 17, as just reported by an Ohio consulting and merger advisory firm called Marsh, Berry & Co. As a group, the top 20 buyers bought more than 350 insurance brokers last year — just seven by MMA.

Of the 16 firms ranked higher than MMA as an active acquirer, only two of them weren’t owned or financed by private-equity firms. The industry’s busiest buyer claimed to have closed on 92 acquisitions in 2017 and more than 100 last year, using some of the more than $2 billion Blackstone Group and two other investment firms have committed.

It’s easy to see why private-equity firms are interested, as they usually prefer stable and predictable cash flow above all else. An insurance agency that collects commissions for annually renewable insurance contracts also doesn’t need a lot of capital and is relatively easy to acquire. Equity firms can buy in and then keep buying.

Tom Stender, the CEO and formerly the owner of Otis-Magie up through its recent sale to MMA, knew all about the river of private-equity money flowing into his industry. He called what these private-equity firms do “grabbing profit,” meaning just evaluating the cash flow of an agency and putting a price on it. Their approach didn’t impress him.

On the other hand, he has known the MMA leaders that came from RJF for years. “Several years ago [an acquisition] had been brought up,” Stender said. “Sort of Tim saying to me, ‘Hey, we are really having fun and our colleagues are prospering and our clients are getting this world-class platform. We should really talk about it.’ ”

Since MMA’s acquisition of a firm in Duluth six years ago, Stender had competed head-to-head with MMA. When he talked about the appealing “platform” of the much larger MMA, he was referring to things like MMA’s capability to offer clients a mock safety audit, since some of his middle-market clients won’t be big enough to have their own on-staff safety officer.

He said the two firms only began talking seriously about combining eight months before the deal closed in December. He just turned 49 years old, he continued, and upon hearing the news his friends and clients realized right away that he had no intention of going anywhere.

MMA remains interested in additional acquisitions but does not have an acquisition budget, Fleming said. It is looking for partners in underrepresented areas such as Iowa and Nebraska.

“Because we’ve now achieved our goal and built a great organization,” he added, “we are getting even more selective.” 612-673-4302