Grade: C — Some Red Flags, Investigate
Framework: Insurance brokerage-specific analysis (organic growth, EBITDAC margins, acquisition integration, goodwill) + Schilit principles
Data: SEC EDGAR 10-K (Filed 2026-02-12, FY ended December 31, 2025) + Yahoo Finance
Auditor: Deloitte & Touche LLP — Unqualified opinion
One-line verdict: Brown & Brown is a serial acquirer in the insurance brokerage space that just completed its largest deal ever. Total revenues surged 22.8% to $5.9B, but organic revenue growth was only 2.8% — meaning the vast majority of growth came from acquisitions. The company completed 43 acquisitions in FY2025, paying $8.7B in gross cash, which sent goodwill from ~$9.8B to ~$16.7B — a 104% surge that now represents 159% of equity. Cash of $1.1B covers only 14% of $7.9B in total debt. EBITDAC margin improved slightly to 35.9%, and cash flow quality is excellent (CFFO/NI = 1.38). This is not an earnings manipulation story — it is an acquisition-fueled growth strategy that has massively leveraged the balance sheet. The question is whether integration succeeds.
| Metric | Result |
|---|---|
| Red Flags | **2** (cash-to-debt, goodwill 159% of equity) |
| Watch Items | **2** (soft asset growth 94%, goodwill surge 104%) |
| Checks Completed | **15/18** (3 N/A) |
| Beneish M-Score | **N/A** (insufficient data for calculation) |
| Altman Z-Score | **N/A** (not applicable to financial services) |
| Auditor | Deloitte & Touche LLP — Unqualified opinion |
Acquisition-Driven Growth
Per the 10-K:
| Metric | 2024 | 2025 | Change |
|---|---|---|---|
| Total Revenues | $4,805M | $5,902M | +22.8% |
| Organic Revenue Growth | 10.4% | **2.8%** | Sharp deceleration |
| Employee Compensation | $2,406M | $2,935M | +22.0% |
| Other Operating Expenses | $710M | $959M | +35.1% |
| Amortization | $178M | $312M | +75.3% |
| Interest Expense | $193M | $297M | +53.9% |
| Net Income (to Company) | $993M | $1,054M | +6.1% |
| Income Before Tax Margin | 27.1% | 23.2% | Declining |
| EBITDAC Margin (Adjusted) | 35.2% | 35.9% | Slight improvement |
Revenue grew 22.8%, but net income only grew 6.1% — the gap is filled by acquisition costs: amortization surged 75%, interest expense rose 54%, and other operating expenses jumped 35%. Pre-tax margin fell from 27.1% to 23.2%.
The filing discloses 43 acquisitions completed in FY2025 with gross cash paid of $8,708 million, compared to $934 million in 2024. This is a nearly 10x increase in acquisition spending. Total consideration allocated includes $6,885 million to goodwill and significant amounts to purchased customer accounts and other intangibles.
Organic revenue growth decelerated sharply from 10.4% to 2.8% — meaning the underlying business is barely growing, and nearly all headline growth is acquisition-driven.
The Goodwill Explosion
Per the filing:
| Item | 2024 | 2025 | Change |
|---|---|---|---|
| Goodwill | ~$9.8B | ~$16.7B* | +$6.9B (+104%) |
| Total Goodwill + Intangibles | ~$9.8B | $20.0B | +104% |
| Shareholders' Equity | — | ~$12.6B | — |
| Goodwill+Intangibles / Equity | — | **159%** | — |
*Goodwill includes $6,885M from 2025 acquisitions alone.
Goodwill at 159% of equity means if just 37% of that goodwill were impaired, equity would be wiped out. For a brokerage that earns commissions on insurance placement, this is an extraordinary amount of balance sheet risk concentrated in the intangible value of acquired customer relationships.
Cash and Debt
Cash of $1.1B against $7.9B in total debt — a coverage ratio of only 14%. This is the weakest cash-to-debt position in this batch of reports. The debt was largely incurred to fund the $8.7B acquisition spree. Interest expense of $297M (up from $193M) is now consuming a meaningful portion of pre-tax income.
Debt/EBITDA at 3.9x is approaching but not yet breaching the typical 4x stress threshold.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | PASS | DSO 132 days, improved -56 days YoY |
| A2 | AR vs Revenue Growth | PASS | AR -13.9% vs revenue +22.5% |
| A3 | Revenue vs CFFO | PASS | Revenue +22.5%, CFFO +23.5% |
Revenue quality checks all pass. The DSO improvement of 56 days and AR decline while revenue surged are positive signals — the acquired businesses are converting to cash quickly.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | PASS | No inventory |
| B2 | CapEx vs Revenue | PASS | CapEx -17.1% vs revenue +22.5% |
| B3 | SG&A Ratio | N/A | Not applicable |
| B4 | Gross Margin | PASS | 49.1%, +0.2pp |
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | PASS | CFFO/NI = 1.38 |
| C2 | Free Cash Flow | PASS | FCF $1.4B, FCF/NI = 1.31 |
| C3 | Accruals Ratio | PASS | -1.3%. Low |
| C4 | Cash vs Debt | FAIL | Cash $1.1B = 14% of $7.9B debt |
Cash flow quality is excellent. CFFO exceeds net income by 38%, and accruals are negative. The only fail is the cash-to-debt ratio — a direct consequence of debt-funded acquisitions.
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | FAIL | $20.0B = 159% of equity |
| D2 | Leverage | PASS | Debt/EBITDA = 3.9x |
| D3 | Soft Asset Growth | WATCH | Other assets +94.3% vs revenue +22.5% |
| D4 | Asset Impairment | N/A | No data |
Acquisition Risk
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | PASS | FCF positive after acquisitions |
| E2 | Goodwill Surge | WATCH | Goodwill +104% YoY |
Manipulation Score
| # | Check | Result | Detail |
|---|---|---|---|
| F1 | Beneish M-Score | N/A | Insufficient data |
Key Risks from the 10-K
1. Integration Risk at Unprecedented Scale
43 acquisitions in a single year, with $8.7B in cash deployed, is an extraordinary pace. The filing states the company completed acquisitions "including book of business purchases." Integrating this many businesses simultaneously creates operational, cultural, and systems risk.
2. Organic Growth Deceleration
Organic revenue growth fell from 10.4% to 2.8%. If the underlying business is growing at less than 3% while the company is spending $8.7B on acquisitions, it raises questions about whether acquisitions are masking organic weakness.
3. Goodwill Impairment Risk
$20B in goodwill and intangibles at 159% of equity means any downturn in the insurance brokerage market — through rate cycle softening, client attrition, or economic recession — could trigger material impairment. Goodwill impairment testing relies on assumptions about future cash flows that become harder to justify during downturns.
4. Leverage and Interest Cost
Debt of $7.9B with only $1.1B in cash creates refinancing risk. Interest expense grew 54% in one year. If rates remain elevated, the cost of servicing acquisition debt will continue to compress margins.
5. Earn-out Liabilities
The filing discloses "change in estimated acquisition earn-out payables" as a line item — meaning the company has contingent consideration obligations to sellers that will consume future cash if acquired businesses perform well. This is a hidden leverage.
Summary
Grade: C. Some red flags. A serial acquirer that just completed the largest acquisition spree in its history, with excellent cash flow quality but a dangerously leveraged balance sheet.
Brown & Brown's operating metrics are solid: CFFO/NI of 1.38, negative accruals, DSO improving, and EBITDAC margin of 35.9%. Deloitte issued an unqualified opinion.
But the balance sheet tells a different story: goodwill at 159% of equity, cash-to-debt at 14%, interest expense up 54%, and organic growth decelerating to 2.8%. The $8.7B acquisition spree has transformed the company's risk profile.
Watch three things:
**Disclaimer**: This report is based on Brown & Brown's fiscal year 2025 10-K filed with the SEC on February 12, 2026. This is NOT investment advice.
**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade C means some red flags exist and further investigation is warranted.