During the quarter, we participated in the initial public offering of BRP Group, Inc. (BRP, Financial). BRP is an independent insurance brokerage firm that distributes commercial and personal insurance to 400,000 clients across the U.S. and internationally. BRP has over 500 employees in over 40 offices across four states. The company was founded in 2011 by Chairman Lowry Baldwin and is headquartered in Tampa, Florida.
The insurance brokerage industry has an attractive business model since brokers earn commissions based on premiums without taking underwriting risk. Revenue is largely recurring and predictable due to annual renewal events and retention rates that approximate 90%. Profit margins are stable at healthy levels, and capital intensity is low, resulting in strong free cash flow generation.
BRP is gaining share in an industry that is growing by mid-single-digits. The company has a younger and more productive sales force than the industry average. BRP separates sales and service, enabling producers to spend more of their time on selling. The company also has proprietary distribution relationships with mortgage originators, home builders, realtors, developers, community bankers, accounting firms, and law firms to distribute insurance directly at the point of sale.
We expect management to be an active consolidator in the highly fragmented insurance brokerage industry. There are approximately 37,000 insurance brokers in the U.S., over 600 were sold in both 2017 and 2018. BRP has acquired 27 firms since 2016, and we expect to see the annualized pace accelerate going forward. We believe that BRP’s strong reputation, client-focused culture, shared services, and favorable tax attributes make it an acquirer of choice. Management plans to grow BRP into a top 10 broker in 10 years, which implies an approximately 10-fold increase in revenue over this period.
From Ron Baron (Trades, Portfolio)'s Baron Growth Fund fourth-quarter 2019 shareholder letter.
