Berkshire Hills Bancorp to Sell Subsidiary to Brown & Brown

Massachusetts-based banking firm Berkshire Hills Bancorp (BHLB) and insurance company Brown & Brown (BRO) have signed an agreement under which Berkshire Hills will sell the assets and operations of its subsidiary Berkshire Insurance Group (BIG) to Brown & Brown of Massachusetts, a unit of Brown & Brown.

Berkshire Hills runs 130 branches in the Mid-Atlantic region, New York and New England. It offers deposit, lending, insurance and wealth management products to retail and commercial customers.

While BIG provides commercial and personal property and casualty insurance solutions, Florida-based Brown & Brown provides insurance and reinsurance products and federal programs services to individual, trade association, professional, institutional, corporate, governmental and quasi-governmental clients. (See Berkshire Hills stock chart on TipRanks)

The CEO of Berkshire Hills, Nitin J. Mhatre, said, “Consistent with Berkshire’s Exciting Strategic Transformation (BEST) program, this transaction allows us to simplify our operating model, repurpose valuable resources and redeploy capital to support core businesses and strategic initiatives that will enhance long term stakeholder value.”

“As a result of this transaction, we will record a net gain on sale of approximately $0.55 per share on a GAAP basis in the third quarter, and anticipate $0.02 lower earnings per share in the second half of 2021,” Mhatre added. (See Brown & Brown stock chart on TipRanks)

After the acquisition, BIG will operate as a separate unit within Brown & Brown’s Retail Segment. Furthermore, BIG will continue to operate its offices in Westfield, Massachusetts, Pittsfield, Stockbridge, Greenfield and Longmeadow. Its offices in other locations will be combined with existing Brown & Brown offices.

The Regional President of Brown & Brown’s Retail Segment, Don McGowan, will be responsible for the combined operations. McGowan said, “This transaction allows us to further expand our footprint in Massachusetts with several new strategic locations that we believe enable us to better serve our customers.”

Last month, KBW analyst Meyer Shields maintained a Buy rating on Brown & Brown and raised the price target to $61 from $60 (5.8% upside potential). The analyst expects Brown & Brown’s shares to rise over the next 12 months on the back of sustained solid organic growth and accompanying margin expansion.

Overall, the stock has a Moderate Buy consensus rating based on 2 Buys and 4 Holds. The average Brown & Brown price target of $58.83 implies 2% upside potential. The company’s shares have gained 25.4% over the past year.

On August 11, Piper Sandler analyst Mark Fitzgibbon downgraded the rating on Berkshire Hills to a Hold from Buy with a price target of $31 (19.6% upside potential).

Overall, the stock has a Hold consensus rating based on 3 Holds. The average Berkshire Hills Bancorp price target of $28.67 implies 10.6% upside potential. Shares of the company have gained 175.4% over the past year.

According to TipRanks’ Smart Score rating system, Berkshire Hills scores a 7 out of 10, suggesting that the stock is likely to perform in line with market averages.