Has the insurance M&A bubble deflated?
Has the insurance M&A bubble deflated? | Insurance Business America
Insurance News
Has the insurance M&A bubble deflated?
Agency mergers and acquisitions fell during the first three quarters of the year
Insurance News
By
Kenneth Araullo
A recent report from OPTIS Partners’ M&A database revealed a notable drop in announced insurance agency mergers and acquisitions during the first three quarters of 2023. The figures show a decline to 534 transactions, down from 729 in 2022, marking a significant decrease.
The report covers sales of US and Canadian agencies dealing with property and casualty (P&C) insurance, as well as those managing both P&C and employee benefits or solely employee benefits. The data from 2022 onwards also encompasses life/financial services, consulting, and other businesses associated with insurance distribution.
OPTIS partner Steve Germundson said that various factors contributed to the slowdown in deal activity. Rising capital costs, increased leverage, and a reduced number of business owners prepared to sell were primary reasons for the decline, Germundson said.
Crunching the figures – has M&A movement slowed down?
Notable shifts in buyers’ behavior were observed, where previous active participants like Acrisure and PCF Insurance notably reduced their deal activity by 81% compared to 2022. However, new leaders emerged, with Broadstreet Partners and Hub International leading the transactions, completing 43 and 37 deals, respectively.
Other significant buyers included Inszone Insurance Services and Leavitt Group, each closing 27 deals, followed by World Insurance Associates with 24, and Arthur J. Gallagher with 25 transactions.
The data also highlighted variations in activity among the most active buyers, as four of the top 10 buyers completed fewer deals in the first three quarters of 2023 compared to 2022.
The breakdown of buyers into specific groups revealed that private equity-backed/hybrid brokers remained dominant, accounting for 67% of all transactions, while privately held brokers moved up slightly to 24%. Additionally, publicly held brokers saw a minor increase in acquisitions, now comprising 6% of the total deals.
P&C-only agencies were the leading sellers, representing 62% of the total transactions, followed by agencies focusing solely on employee benefits and those handling both P&C and employee benefits. The report also outlined sales by MGAs, TPAs, and sellers of life/financial services agencies, consulting, and other businesses associated with insurance distribution.
While it seems that activity has indeed slowed, OPTIS partner Dan Menzer said that there are still a lot of deals being done. A number of buyers not strapped with debt are also still upping their deal flow, a trend which could push M&A to return to pre-bubble pace.
“We continue to see valuations holding, especially for attractive sellers. The economic change of rising interest rates and a reduction in the supply of sellers has fundamentally changed the value proposition that the insurance distribution business represents. It has not reduced the demand from a still robust group of buyers. We expect the valuation environment to hold rather steady, though we could see that soften slightly for less attractive firms over the coming quarters,” OPTIS managing partner Tim Cunningham said.
In a recent IB interview, Marsh McLennan Agency (MMA) CEO David Elsick revealed that the company’s M&A pipeline “has never been better,” and that there are still high-quality firms to be in contact with.
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