This article was produced in partnership with Intact Insurance
Want to buy a brokerage (or three)? Have plans for growth that require some financial support? The good news: you’ve got options. The bad news: you may not be aware of the ones that offer you the most flexibility and long-term benefit.
In a market characterized by competing acquirers, soaring acquisition multiples, high buyer expectations, and a dwindling target supply, it’s imperative that brokerages make the right play, said Rick Morris (pictured), vice president, broker solutions, Intact Insurance. What that looks like differs from brokerage to brokerage, but for Morris, it all boils down to who you’re buying and how you’re financing your acquisition.
Brokers usually know, inside out, who they’re eyeing and buying. Given the rising multiples (and interest rates), Morris thinks they need to pay more attention to how they’re financing their plays.
“You’ve got a lot of capital and a lot of players in the market right now,” he said. “People tend to focus on who is doing the acquiring. For me, just as interesting is where are they getting the capital for the acquisition. From a traditional bank? Through private equity?””
How about from a carrier?
A handful of carriers, Intact Insurance key among them, are active in the broker finance space. In the current market, financing an acquisition through a channel such as the broker financial solutions offered by Intact Insurance may be an ambitious brokerage’s best option.
“With all of the news about acquisitions, it’s easy for brokers to think that perhaps their best or only option right now is to sell, but that is just not the case,” said Morris. “Working with a team like ours presents other options.”
“We have a dedicated team that is 100% focused on doing broker finance transactions within the broker channel,” he noted. “We facilitate both loans to and invest in brokerages by taking a minority equity stake, so that they have the financing necessary to successfully execute on their acquisition, succession planning, and growth strategies.”
The financing options offered by Intact are particularly attractive in the current high interest rate environment, in which it’s harder for some brokerages to take on debt to finance their growth strategies.
“We are able to offer brokers more flexibility because we are not a bank or traditional lender,” Morris explained. “We are a strategic lender or investor. Of course, we are a business and our decisions need to make financial sense, but they primarily need to make sense to us strategically as an insurer. Within those parameters, we can offer a great deal of flexibility that perhaps some other parties cannot.”
That flexibility includes giving considerable weight to non-financial considerations.
“When we invest in a brokerage, we do it because we believe in the book, we believe in the people and we believe in their future,” Morris said. “We support brokers throughout their life cycles, from the early stage through to organic growth and growth through acquisitions stages, all the way to succession planning. When it is time for one of our partners to exit the business, we’re looking to find somebody else to believe in, to support and facilitate their growth.
“We’re not looking to flip brokerages: we’re playing the long game on all of this. We have a track record of consistent presence in this space no matter what happens in the market. We keep on investing in high-potential brokerages throughout market downturns and recessions.”
While the broker financial solutions team looks to lend or invest in brokerages with a strong vision, the execution of the vision – and control of the business – is all on the brokerage.
“When we have a financing relationship with a brokerage, we don’t go in there and tell you how to run the business day-to-day,” Morris told Insurance Business. “The operating shareholders need to run the business and execute on their vision. Our role is to provide the financing and support to help the broker grow, whether through a loan or through a partial equity investment.”
Have a plan and a target? Ready to explore financing options? Morris wants to hear from you.
“Reach out and paint your picture of what the ideal transaction looks like for you,” said Morris. “Let’s explore and see if we can make it work. We believe we’ve got the flexibility to find a solution for growth-oriented brokers who have a vision and a strategy and need support on the financing part.”
Start the conversation: [email protected].
