Insurance brokerage M&A hits record in 2018

2018 was a record-breaking year for mergers and acquisitions of insurance brokers, according to a report by M&A advisory firm OPTIS Partners.

The OPTIS database logged 626 deals in the US and Canada last year, a new record that included 330 transactions in the second half of the year and 148 in the fourth quarter. There were 611 M&A deals in 2017, the previous record year.

“The M&A market for insurance agents and brokers continues to surprise and exceed expectations,” said Timothy J. Cunningham, managing director of OPTIS. “There are no signs of anything changing in the near term, either.”

The OPTIS report covered firms selling primarily property and casualty insurance, both P&C and employee benefits, and employee benefits agencies. Private equity and hybrid buyers accounted for 424 transactions, or 68% of the total, according to the report.  That’s up from 383 transactions and 63% in 2017.

“The concentration of PE/hybrid buyers has grown steadily since we began tracking deals in 2008, when only 21% of the transactions involved private equity buyers,” Cunningham said.

The top buyer in 2018 was Acrisure, with 101 acquisitions, followed by HUB International (58), AssuredPartners (37), Gallagher (36), and Broadstreet Partners (34). All fell into the PE/hybrid category except Gallagher, which is publicly owned.

Privately owned firms completed 107 transactions last year, down from 137 in 2017. This marked the first decrease for the group since 2013, according to OPTIS.

P&C agencies were the top sellers, accounting for 345 transactions – 55% of the total – in 2018, OPTIS reported. Employee benefits brokers accounted for 146 transactions, 23% of the total, down from 174 in 2017.

There were 142 unique buyers last year, down from 177 in 2017 and the lowest total since 2014, the report found. The top 10 buyers accounted for 62% of transactions last year, up from 56% in 2017.

Other key findings include:

• Buyers continued to find attractive agencies to acquire
• Agency valuations are rising, pushing revenue and earnings before interest, tax, depreciation and amortization “to levels seldom, if ever, seen before,” according to OPTIS
• Internal perpetuation is challenging because of the increasing gap between the value third-party buyers are willing to pay and internal transaction values

While the OPTIS database tracks a consistent pool of the most active acquirers, Cunningham said the reported numbers didn’t tell the whole story.

“The actual number of agency acquisitions was far greater than the number reported, as many buyers and sellers do not report transactions, and some acquirers do not report small transaction,” he said.