Specialized, niche-focused brokers will shine in Canada’s mergers and acquisitions (M&A) market, while generalist brokers will find it more difficult to find buyers.
That’s according to Jamie Lyons, CEO of Westland Insurance Group.
“There's going to be opportunities for smaller specialized niche focus brokers, but it's getting harder to be a smaller, more generalist broker,” he told Insurance Business.
Westland has made a slew of specialist deals over the past year, most recently with Vancouver-based broker Shepard Ashmore, which offers insurance and risk management solutions for artists and entertainers.
It also acquired film and entertainment broker Front Row Insurance in September and transport specialist broker National Truck League in July 2022.
Though the “current cost of capital conditions” may curtail dealmaking, Lyons said there is still a rich pool of sellers in the market while buyers will find the insurance sector an attractive industry to invest in amid a potential recession.
“I still think you've got a very active pool of brokers who are thinking about what comes next for their brokerage.
“In terms of potential buyers, I think we are in a different cost of capital environment than we were in a year ago.
“Cost of debt is up almost 500 basis points in the last year, and to some degree I think that could curtail some of the M&A appetite.
“But realistically speaking, a great brokerage is going to be a sought-after acquisition for active buyers, but there could be more of a view around discerning the quality of those brokerages.”
Despite the current environment, Westland expects to remain “very active” in the M&A market this year, according to Lyons.
“We’re fortunate to be in a recession-resilient industry, in that we may be less impacted if Canada is entering a recessionary environment,” the CEO said.
“There's a lot of things within the insurance sector that make it an attractive industry for people to want to invest and want to deploy capital.”
Lyons also spoke about Westland’s continued partnership with Blackstone Credit, which has injected a further $250 million into the brokerage group.
The latest round of funding was raised in December last year and included an undrawn debt facility for acquisition purposes. Blackstone’s total investment in Westland now sits at $1.4 billion.
“[The funding] is helping support some of the investments that we have made, including our technology and infrastructure,” Lyons said.
“It has a two-fold [benefit], supporting both the organic and inorganic initiatives of the organization.”
Westland is Canada’s largest independent brokerage, with more than 200 offices and 2,300 employees across the country.
Lyons, who assumed the top role in Westland at the start of the year, has said growth is a major focus for the group in the coming months, along with its digital transformation and ESG initiatives.
Westland is also looking to build out its national footprint through further acquisitions, strengthening its presence in its existing areas while finding new ones to break into.
The group is seeking businesses with a strong community presence and “have great relationships with their clients and market partners,” regardless of whether they’re in personal or commercial lines.
Asked about the possibility of Westland being bought out by a larger investor, Lyons said it isn’t in its vision for the near future.
“Our objective is always to ensure that we've got a strong balance sheet so that we can continue to pursue the strategy that we have been pursuing. As a proudly independent Canadian company, we are very closely connected to our roots,” he said.
“Our intention is to continue on the growth journey and to stay closely aligned and committed to the culture of the organization.”
Do you agree with Lyons’ assessment of the M&A market? Share your thoughts in the comments below.
